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| Miliband's abolition: Many have tried to close non-dom loophole – all have failed | Miliband's abolition: Many have tried to close non-dom loophole – all have failed |
| (35 minutes later) | |
| When John Major was contemplating scrapping the tax advantages of non-dom status some decades ago, legend has it he changed his mind after a delegation of Greek shipping merchants descended on Downing Street, threatening to move the Baltic Exchange shipping market from London to Hamburg. | |
| Successive generations of ministers across the political spectrum have tried and failed to close the loophole that allows wealthy individuals with foreign passports to live in the UK, raise their families here and often end their days here, without paying tax on their offshore fortunes. | Successive generations of ministers across the political spectrum have tried and failed to close the loophole that allows wealthy individuals with foreign passports to live in the UK, raise their families here and often end their days here, without paying tax on their offshore fortunes. |
| But Ed Miliband’s pledge to end an “unfair” system that discriminates against ordinary UK citizens is the first by a serving party leader. | But Ed Miliband’s pledge to end an “unfair” system that discriminates against ordinary UK citizens is the first by a serving party leader. |
| If the electorate returns a Labour government, there will be considerable pressure to water down any changes. | If the electorate returns a Labour government, there will be considerable pressure to water down any changes. |
| The Tax Justice Network has lobbied for abolition of the loophole on the grounds that it is discriminatory. Its director, John Christensen, says: “My suspicion is there are no real benefits to the UK economy [from the nom-dom rule]. The politicians do it because of the power of the lobbies that fund the political parties. | The Tax Justice Network has lobbied for abolition of the loophole on the grounds that it is discriminatory. Its director, John Christensen, says: “My suspicion is there are no real benefits to the UK economy [from the nom-dom rule]. The politicians do it because of the power of the lobbies that fund the political parties. |
| A typical tax exile will have UK residency, a Swiss account, and assets hidden in trusts in UK protectorates | A typical tax exile will have UK residency, a Swiss account, and assets hidden in trusts in UK protectorates |
| “There is a large and influential industry of lawyers and accounting firms and estate agents who are extremely vociferous in lobbying for retention of this exemption, and throughout my career this lobby has been one of the most powerful but discrete going”. | “There is a large and influential industry of lawyers and accounting firms and estate agents who are extremely vociferous in lobbying for retention of this exemption, and throughout my career this lobby has been one of the most powerful but discrete going”. |
| One of the most startling revelations from the HSBC files – which highlighted tax avoidance and evasion aided by the bank’s Swiss operation – was that while the bank’s customers from Brazil, France or Italy were often hiding their money illegally in the bank’s Swiss subsidiary, many UK resident non-doms were sheltering their assets in Switzerland with the full backing of British law. | One of the most startling revelations from the HSBC files – which highlighted tax avoidance and evasion aided by the bank’s Swiss operation – was that while the bank’s customers from Brazil, France or Italy were often hiding their money illegally in the bank’s Swiss subsidiary, many UK resident non-doms were sheltering their assets in Switzerland with the full backing of British law. |
| A typical tax exile will have UK residency, a Swiss account, and assets hidden in companies and trusts established in UK protectorates such as Jersey, Guernsey, the British Virgin Islands or the Cayman Islands, where details such as company accounts and even company ownership are not required to be published. | A typical tax exile will have UK residency, a Swiss account, and assets hidden in companies and trusts established in UK protectorates such as Jersey, Guernsey, the British Virgin Islands or the Cayman Islands, where details such as company accounts and even company ownership are not required to be published. |
| Related: Non-dom donors: who has given money to which parties? | Related: Non-dom donors: who has given money to which parties? |
| Any UK assets, including homes, land, art collections and even garages full of high-end cars will typically be owned by such offshore trusts. This wealth is of little profit to the UK taxpayer, but can pay rich dividends for the UK lawyers, accountants and money managers who advise on how to hide it. | Any UK assets, including homes, land, art collections and even garages full of high-end cars will typically be owned by such offshore trusts. This wealth is of little profit to the UK taxpayer, but can pay rich dividends for the UK lawyers, accountants and money managers who advise on how to hide it. |
| Until 2010, non-doms were allowed to avoid tax while at the same time sitting as legislators in both houses of Parliament. Reforms saw the MP Zac Goldsmith and peer Swraj Paul renounce their non-dom status to hold on to their seats. Architect Norman Foster chose instead to renounce his seat in the Lords and keep his valuable non-dom status. | Until 2010, non-doms were allowed to avoid tax while at the same time sitting as legislators in both houses of Parliament. Reforms saw the MP Zac Goldsmith and peer Swraj Paul renounce their non-dom status to hold on to their seats. Architect Norman Foster chose instead to renounce his seat in the Lords and keep his valuable non-dom status. |
| But those who belong to the select club of the UK’s wealthiest foreign citizens still hold sway over British politics. Speaking on the BBC’s Today programme on Wednesday, Paul drew a strong link between political donations and the decision of successive governments to retain the tax break, saying the system was open to “corruption”. | But those who belong to the select club of the UK’s wealthiest foreign citizens still hold sway over British politics. Speaking on the BBC’s Today programme on Wednesday, Paul drew a strong link between political donations and the decision of successive governments to retain the tax break, saying the system was open to “corruption”. |
| As early as 1988, the Inland Revenue consulted on how non-dom tax perks might be swept away. The initiative was abandoned, but in 1996, Gordon Brown indicated Labour would end the special treatment. | As early as 1988, the Inland Revenue consulted on how non-dom tax perks might be swept away. The initiative was abandoned, but in 1996, Gordon Brown indicated Labour would end the special treatment. |
| His spin doctor told the Sunday People: “It’s wrong that some millionaires pay no tax and we’ll make sure they all pay their fair share in the future.” | His spin doctor told the Sunday People: “It’s wrong that some millionaires pay no tax and we’ll make sure they all pay their fair share in the future.” |
| But the numbers declaring themselves non-domicile UK residents did not dwindle under Tony Blair’s prime ministership – they increased. There were 67,600 non-doms when Labour came to power in 1997, and 137,000 a decade later. | But the numbers declaring themselves non-domicile UK residents did not dwindle under Tony Blair’s prime ministership – they increased. There were 67,600 non-doms when Labour came to power in 1997, and 137,000 a decade later. |
| At the same time, non-dom entrepreneurs like Lakshmi Mittal and Richard Caring were donating millions to Labour. Mittal wrote two separate £2m cheques to the party in 2005 and 2007, giving over £5m in total before 2010. | At the same time, non-dom entrepreneurs like Lakshmi Mittal and Richard Caring were donating millions to Labour. Mittal wrote two separate £2m cheques to the party in 2005 and 2007, giving over £5m in total before 2010. |
| Efforts to reform the system were stymied. In 2008, with Alistair Darling as chancellor, Labour passed legislation which simply introduced a new set of loopholes. | Efforts to reform the system were stymied. In 2008, with Alistair Darling as chancellor, Labour passed legislation which simply introduced a new set of loopholes. |
| Non-doms could stay in the UK for up to seven years with all the benefits – tax-free offshore income and capital gains, no inheritance tax, and, for many, no obligation to pay tax on offshore assets in their country of origin either. | Non-doms could stay in the UK for up to seven years with all the benefits – tax-free offshore income and capital gains, no inheritance tax, and, for many, no obligation to pay tax on offshore assets in their country of origin either. |
| Those who stayed longer than seven years would either pay tax on worldwide income like any ordinary UK citizen, or pay an annual fee and retain all their offshore protection. Today that fee stands at £30,000-£90,000, depending on how long the individual has resided in the UK. | Those who stayed longer than seven years would either pay tax on worldwide income like any ordinary UK citizen, or pay an annual fee and retain all their offshore protection. Today that fee stands at £30,000-£90,000, depending on how long the individual has resided in the UK. |
| That is a high a price to pay for ordinary earners, but small change to a billionaire with hundreds of millions to lose in tax. “For those people, the annual fee is a weekend’s pocket money on a trip to Monaco,” says Christensen. | That is a high a price to pay for ordinary earners, but small change to a billionaire with hundreds of millions to lose in tax. “For those people, the annual fee is a weekend’s pocket money on a trip to Monaco,” says Christensen. |
| Non-dom status became so commonplace that British citizens, like HSBC boss Stuart Gulliver, started swapping homelands | Non-dom status became so commonplace that British citizens, like HSBC boss Stuart Gulliver, started swapping homelands |
| And for non-doms resident in the UK for the less than 17 years, there is still no inheritance tax. The only real requirements to qualify are a foreign passport, and successfully persuading the tax man that one intends to end one’s days abroad. | And for non-doms resident in the UK for the less than 17 years, there is still no inheritance tax. The only real requirements to qualify are a foreign passport, and successfully persuading the tax man that one intends to end one’s days abroad. |
| Giving his verdict on the changes, tax adviser Patrick Harney, a partner at London firm Forsters, wrote: “Since 2008, there have been significant changes in the UK tax treatment of UK resident non-domiciliaries that have made tax planning for ‘non-doms’ a much more complex task. Nonetheless, the basic premise about the UK being a tax haven for the well-advised ’non-dom’ remains true.” | |
| The status has other attractions. Fiona Fernie, tax partner at Pinsent Masons, explains: “For the people in the media, they tend to pay the charge because it’s important to keep a certain level of privacy around their affairs.” | The status has other attractions. Fiona Fernie, tax partner at Pinsent Masons, explains: “For the people in the media, they tend to pay the charge because it’s important to keep a certain level of privacy around their affairs.” |
| Debate is now focusing on how much, if anything, reform could raise. Of the 113,800 self-declared non-doms in 2012-13, only 5,080 paid the annual charge. | Debate is now focusing on how much, if anything, reform could raise. Of the 113,800 self-declared non-doms in 2012-13, only 5,080 paid the annual charge. |
| Pinsent Masons estimate they paid £6.8bn in tax that year, of which the levy was only 2.6%. Some argue that every incentive exists to prevent non-doms bringing money into the UK and incurring tax. Many have kept the majority of their business interests firmly abroad rather than creating hundreds of new jobs in the UK. | Pinsent Masons estimate they paid £6.8bn in tax that year, of which the levy was only 2.6%. Some argue that every incentive exists to prevent non-doms bringing money into the UK and incurring tax. Many have kept the majority of their business interests firmly abroad rather than creating hundreds of new jobs in the UK. |
| What is certain is that, if the non-doms attracted to the UK in recent decades where to relocate again – to the Middle East, for example, where there is no income tax – the Top 20 of the annual Sunday Times rich list would require a major rewrite. | What is certain is that, if the non-doms attracted to the UK in recent decades where to relocate again – to the Middle East, for example, where there is no income tax – the Top 20 of the annual Sunday Times rich list would require a major rewrite. |
| A casual glance shows more than half the names, including the Hinduja brothers; the Russians Alisher Usmanov, Len Blavatnik and Roman Abramovich; and the Swiss Italian businessman Ernesto Bertarelli are eligible for the perk. | A casual glance shows more than half the names, including the Hinduja brothers; the Russians Alisher Usmanov, Len Blavatnik and Roman Abramovich; and the Swiss Italian businessman Ernesto Bertarelli are eligible for the perk. |
| HMRC does not publish names, but the roll call of declared non-doms includes the Tetra Pak heiress Sigrid Rausing, the financier Ben Goldsmith, the Dragons’ Den entrepreneur James Caan, and the newspaper owner Viscount Rothermere, who inherited his French nationality, along with the Daily Mail newspaper, from his father. | HMRC does not publish names, but the roll call of declared non-doms includes the Tetra Pak heiress Sigrid Rausing, the financier Ben Goldsmith, the Dragons’ Den entrepreneur James Caan, and the newspaper owner Viscount Rothermere, who inherited his French nationality, along with the Daily Mail newspaper, from his father. |
| Non-dom tax exemption dates to 1799, when income tax began. UK residents were taxed only on money brought into the country. This encouraged outward investment – the profits from Jamaica sugarcane plantations or Virginia tobacco were sheltered from UK duties. | Non-dom tax exemption dates to 1799, when income tax began. UK residents were taxed only on money brought into the country. This encouraged outward investment – the profits from Jamaica sugarcane plantations or Virginia tobacco were sheltered from UK duties. |
| The significance of this cannot be overstated. For over a hundred years the UK has run a two-tier tax system. | The significance of this cannot be overstated. For over a hundred years the UK has run a two-tier tax system. |
| But in 1914, with a war to pay for, the UK Finance act introduced income tax for overseas earnings as well. An exception was made for those resident, but not domiciled, in the UK. | But in 1914, with a war to pay for, the UK Finance act introduced income tax for overseas earnings as well. An exception was made for those resident, but not domiciled, in the UK. |
| By the end of the second world war, the situation had reversed: the non-dom laws were now encouraging inward investment, attracting wealthy individuals to set up home in the UK. | By the end of the second world war, the situation had reversed: the non-dom laws were now encouraging inward investment, attracting wealthy individuals to set up home in the UK. |
| The Baltic Exchange’s Greek shipping tycoons were among the first. With postwar Greece uncomfortably close to an expanding Soviet Union, they moved their money offshore. Later, City workers were making full use of the perk. Bankers posted to London agreed to low salaries paid in the UK in exchange for bigger bonuses paid offshore. | The Baltic Exchange’s Greek shipping tycoons were among the first. With postwar Greece uncomfortably close to an expanding Soviet Union, they moved their money offshore. Later, City workers were making full use of the perk. Bankers posted to London agreed to low salaries paid in the UK in exchange for bigger bonuses paid offshore. |
| Then came the Indian entrepreneurs and Russian oligarchs, along with tax refugees from some of Europe’s most powerful families. | Then came the Indian entrepreneurs and Russian oligarchs, along with tax refugees from some of Europe’s most powerful families. |
| Non-dom status became so commonplace in the City that some British citizens, like HSBC boss Stuart Gulliver, started swapping homelands. Gulliver lives in the UK, runs the country’s biggest bank and educated his children in Britain, but he is now Hong Kong Chinese for tax purposes, and has told the UK tax office that he plans to end his days abroad. | Non-dom status became so commonplace in the City that some British citizens, like HSBC boss Stuart Gulliver, started swapping homelands. Gulliver lives in the UK, runs the country’s biggest bank and educated his children in Britain, but he is now Hong Kong Chinese for tax purposes, and has told the UK tax office that he plans to end his days abroad. |
| For tax campaigner Richard Murphy, reforming the non-dom laws would be the single biggest contribution to tax justice in the UK. | For tax campaigner Richard Murphy, reforming the non-dom laws would be the single biggest contribution to tax justice in the UK. |
| “The significance of this cannot be overstated. For over a hundred years the UK has run a two-tier tax system.” | “The significance of this cannot be overstated. For over a hundred years the UK has run a two-tier tax system.” |
| For campaigners like Murphy, the non-dom laws are a pure tax haven device. By luring the world’s super rich away from home, campaigners say the UK effectively has done for income tax what Luxembourg has done for corporation tax – deprived other countries of revenues in exchange for a small percentage of the profits. | For campaigners like Murphy, the non-dom laws are a pure tax haven device. By luring the world’s super rich away from home, campaigners say the UK effectively has done for income tax what Luxembourg has done for corporation tax – deprived other countries of revenues in exchange for a small percentage of the profits. |