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Permanent non-dom tax status to be abolished, chancellor announces Permanent non-dom tax status to be abolished, chancellor announces
(about 1 hour later)
George Osborne has pledged to end permanent entitlement to the controversial non-domicile loophole that has let thousands of wealthy families live in Britain without paying tax on their overseas income.George Osborne has pledged to end permanent entitlement to the controversial non-domicile loophole that has let thousands of wealthy families live in Britain without paying tax on their overseas income.
Non-dom status is to be abolished for individuals who were born in Britain to UK domiciled parents, and for those who have lived in the country for more than 15 of the last 20 years. Non-dom status is to be abolished for some 1,750 individuals who were born in Britain and either achieved it by moving abroad or inherited it from their parents. It will also be taken away from those who have lived in the the UK for more than 15 of the last 20 years, catching those families who in some cases have passed the tax perk down through three generations. The measures could impact 15,000 individuals, according to the Treasury.
Announcing the measure in the summer budget, the chancellor said: “British people should pay British taxes in Britain - and now they will.” The new rules take effect in April 2017 and should raise £1.5bn over the course of this parliament, Osborne claimed. “British people should pay British taxes in Britain - and now they will,” said Osborne, as he announced the clampdown as part of the summer budget. The new rules take effect in April 2017 and could raise £1.5bn over the course of this parliament.
He said: “It is not fair that people live in this country for very long periods of their lives, benefit from our public services, and yet operate under different tax rules from everyone else.” The chancellor said: “It is not fair that people live in this country for very long periods of their lives, benefit from our public services, and yet operate under different tax rules from everyone else.”
In a general clamp down on tax cheating, HMRC will be given extra funds to step up its investigations into wealthy individuals, small and large corporations, along with new powers to name and shame serial tax evaders. The Treausry hopes its anti avoidance and anti evasion measures will help HMRC raise an extra £3.4 billion a year by 2020. Experts warned the measures could lead to an exodus of the foreign billionaires whose names now dominate the lists of Britain’s wealthiest residents. The Russian oligarch Roman Abramovich, the steel magnate Lakshmi Mittal, the rag trade tycoon Richard Caring, the newspaper proprietor Viscount Rothermere, television star and businessman James Caan, the packaging heiress Sigrid Rausing and the architect Norman Foster are among the many famous names thought to have benefited from non-domiciled status.
The unfairness of the non-dom regime came under the spotlight after the Guardian’s investigation into HSBC’s Swiss subsidiary revealed how widely the tax perk, unique to Britain, was being exploited by politicians, footballers, bankers and businessmen. “We will see fewer oligarchs,” said Bill Dodwell, tax policy head at accountants Deloitte. “Foreign billionaires who don’t work and have massive global businesses - these people will probabaly cease to be UK citizens once they pass 15 years. It’s unlikely they are going to volunteer to pay UK tax on their global income. They may retain UK homes and send their children to school here but they themselves will have to spend a reduced numbers of days in the UK.”
Public councern mounted when it was revealed that HSBC chief executive Stuart Gulliver was able to claim to be non-domiciled, despite being born in Britain to British parents, educated at a grammar school in Plymouth and at Oxford university. Although Gulliver lives in the UK and runs a British bank, he was able to argue he should not pay tax on his worldwide income because he intended to move to Hong Kong after retiring. The unfairness of the non-dom regime was exposed after the Guardian’s investigation into HSBC’s Swiss subsidiary showed how widely the tax perk, unique to Britain, was being exploited by politicians, footballers, bankers and businessmen.
Curbs on non-doms were first proposed by Ed Miliband during the general election. Osborne stopped short of Labour’s proposals to completely abolish non-dom status, saying this would cost the country money in lost tax receipts, but he condemned its “fundamental unfairnesses”. Public councern mounted when it was revealed that HSBC chief executive Stuart Gulliver was able to be non-domiciled, despite being born and educated in the UK by British parents. Although Gulliver lives in the UK and runs a British bank, he was able to argue he should not pay tax on his worldwide income because he had worked abroad and intended to move to Hong Kong after retiring.
Some 114,000 UK residents currently benefit from the tax break, which allows them to only pay tax on UK earnings. But the rule has been subject to widespread abuse, with wealthy residents owning UK assets such as homes and art collections through offshore companies in order to avoid UK tax on increases in their value. Others have banked fortunes in countries like Switzerland, helping them avoid tax in both their countries of origin and in Britain. Curbs on non-doms were first proposed by Ed Miliband during the general election. Osborne stopped short of Labour’s proposals to completely the status, saying this would cost the country money in lost tax receipts, but he condemned its “fundamental unfairnesses”.
Some 114,000 UK residents currently claim to be non-domiciled. The status allows many to only pay tax on UK earnings, and avoid inheritance taxes. But the rule has been subject to widespread abuse, with wealthy residents owning UK assets such as homes and art collections through offshore companies in order to avoid UK tax on increases in their value. Others have lived in UK homes but banked their fortunes in countries like Switzerland and Singapore, helping them avoid tax in both their countries of origin and in Britain.
Related: Non-dom status: living and working in the UK, without paying all your tax in the UKRelated: Non-dom status: living and working in the UK, without paying all your tax in the UK
It is unclear how many individuals will be affected after the new rules are introduced. Those resident in the UK for more than seven years are required to either pay UK tax, or pay an annual charge that ranges from £30,000 to £90,000, depending on how long the individual has lived in Britain. The latest figures show that in 2012-13, some 5,080 paid the annual charge. Under current rules, those resident in the UK for more than seven years are required to either pay UK tax on their worldwide income, or pay an annual charge that ranges from £30,000 to £90,000, depending on how long the individual has lived in Britain. The latest figures show that in 2012-13, some 5,080 paid the annual charge. These are the individuals most likely to decide to cut short their stay in Britain.
The chancellor also vowed to close a property loophole which allows non-domiciles to avoid tax on UK homes by holding them in offshore companies. And within two years, inheritance tax will be payable on all UK residential property owned by non-domiciles. The chancellor also vowed to close the property loophole which allows non-domiciles to avoid tax on UK homes by holding them in offshore companies. And within two years, inheritance tax will be payable on all UK residential property owned by non-domiciles. The measures will be introduced in a 2016 Finance Bill.
Among Britain’s best-known non-dom families are the packaging billionaires Hans and Sigrid Rausing, the Bank of England’s Canadian governor Mark Carney the newspaper proprietor Lord Rothermere, the enrepreneurs James Caan and Richard Caring, and the children of the late Sir Jimmy Goldsmith. His son, the MP Zac Goldsmith, relinquished his non-dom status after members of parliament and the Lords were banned from using the tax perk. The decision to allow non-domiciles to live and work in the UK for 15 years will come as a relief to banks and hedge funds, which rely on cohorts of foreign high flyers whose wages are often paid via offshore companies despite the fact that their work is carried out in London. Falling into this category are high profile City figures like the bank of England’s Canadian governor Mark Carney and Royal Bank of Scotland chief executive Ross McEwan, who was born in New Zealand.
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.
Successive governments have shied away from reforming the anomaly, which dates to the introduction of income tax on foreign earnings in 1914, when the UK government was trying to cover the cost of the first world war. It attracted Greek shipping tycoons to London in the 1960s, and waves of Indian, Russian and European tax exiles in subsequent decades.