So Alastair Darling has gone ahead with his £30,000 per year tax on "non-doms" who have been living in the UK for seven years or more. The Labour government has been agonising over the unique tax break given to these folks ever since coming to power, but until now it has been deterred by warnings that all these, ahem, rich and dynamic folks will leave the country in a huff, crippling the financial sector -- which is, let's face it, about the only globally-competitive industry we have left. These warnings were heard again this time, while from the other side the TUC and others argued for much more stringent measures.
I have trouble coming to a clear view on this. When I returned to the UK in 1998, after well over 20 years in Canada, I was allowed non-dom status. This didn't stop me paying a juicy amount of tax in the UK over the next ten years, but it meant I could keep the nest-egg that I'd accumulated while in Canada free from tax, as long as I left it offshore. Once I decided to retire in the UK, it was clear to me that I could no longer justify claiming to be non-domiciled, and I started to pay tax on all of my income, including the money held offshore.
Aside from the fact that I was born in the UK (and had never heard of the non-dom rules until I returned here), I think my case exactly illustrates what these rules are supposed to achieve. It seems quite reasonable that people moving to the UK for work, with a very high probability of returning to their permanent home within a few years, can keep their savings away from the UK taxman, given that none of the money has been earned or will ever be spent here. And they may well be paying tax to their home jurisdiction while in the UK anyway: the US, the largest single supplier of non-doms to the UK, taxes its citizens on their worldwide income.
In my case, I gave up non-dom status after eight years. Under Darling's new rules I'd have had to give it up after seven, or start paying his levy. Faced with the choice I'd have given up the non-dom status, so the new rules would have had no major impact on me. I suspect the same is true for most of the non-doms in the financial sector -- most are back home long before the allowed seven years are up. So concerns over the City suddenly emptying out are probably wildly exaggerated.
However, many of today's non-doms aren't rich, dynamic bankers like wot I was. A couple of issues ago, Private Eye ran a spoof ad in support of the non-doms' case to remain untaxed. Its non-doms included "Oligarski Sonovabitch", Russia's richest man, "Bakshish Bakhanda", a "samosas to steel tycoon", and "Don Corblimeone", a mafioso. These characters may be fictional, but the types they represent make up an increasing share of the non-dom population. It's hard to see what they do for the economy, apart from pushing up house prices and boosting the trade deficit by importing luxury goods.
Are any of these people going to leave as a result of a £30,000 tax? The money itself is a fleabite. Many of these people are in London because of its lifestle and perceived safety. I've always said that Roman Abramovich didn't move to London to launder his money, but to launder himself: as a public figure in London, he's largely immune to any recriminations from Moscow for his past activities, unlike some of his fellow tycoons who stayed at home. Roman and his like are not leaving, so you could argue that the Chancellor could have gone after them a bit harder.
All in all, then, I think the Government may have got this one about right. Inevitably there will be some TV coverage in the next while of some supposed fatcat boarding his private jet at Farnborough with his trophy wife and his suite of Louis Vuitton luggage, but I think the economy will survive the shock. The new measures are not going to raise much money, but at least they create the impression that the Government has done something to make the tax system just a little bit fairer.
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