Opinion: non-domiciles and tax

The Chancellor has performed yet another climb-down from his Pre-Budget tax proposals made in October last year, as a ‘clarification’ of proposals to tax non-domiciles was announced in order to correct previous ‘misunderstandings’.

Following fast on the heels of the Capital Gains Tax debacle, this most recent retreat makes the Government look thoroughly foolish. Once again it is painfully obvious that ministers hadn’t thought through the implications of their own policy plans.

The Liberal Democrats were the first party to highlight serious tax avoidance abuses by non-dom residents, and called for non-dom status to be limited to a specified number of years.  We have argued for some time that non-domiciled status does provide some unjustified tax loopholes. But the flat-rate charge proposed by the Government and the Conservatives is not the way to end this scandal.  A poll tax on non-doms would be prohibitive for the large number of non-domiciles of modest means, but would be a flea bite for the fat cats. The Tories’ charge would probably seem to Mr. Abramovich not much more than a round of drinks at half time at Stamford Bridge.  Even Digby Jones, the Trade Minister, confirmed this week that the Chancellor’s proposals were counter-productive and damaging to the British economy.

The Government has made an unholy mess of this issue.  British taxpayers simply do not understand why they are subject to the 40% top rate whilst non-doms living in Britain should pay little more than Council Tax on houses worth millions.  Super-rich non-domiciles should be allowed their tax-free status for seven years, but after that they should be treated in the same way as other British residents and made to pay their fair share of tax.

Vince Cable is MP for Twickenham and the party’s Shadow Chancellor of the Exchequer

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17 Comments

  • Er…?

    Many non-doms live in leasehold flats in Kensington and Westminster.

    How would LVT hit them?

    Soak the Duke of Westminster and the Earl of Cadogan. Now I’d be well in favour of that!

  • Something tenuously related that I’ve been wondering about: Was Labour’s Taper relief plan that they abandonned substantially different to ours? I take it our taper relief proposals are still part of our tax switch policy.

  • Martin Land 18th Feb '08 - 4:45pm

    If only we could find a way of combining LVT, PR and opposition to Trident into one single policy we could truly bore the electorate to death.

  • Most kinds of occupation of land that involve exclusive possession and the payment of rent are leases, whether the term certain is one week or 999 years. See Street v Mountford (lord Goodhart was on the losing side of the argument!).

  • In practice no tax is perfect; not even green taxes and LVT. Vince Cable’s point is that the Government’s and the Tories proposals for taxing nondoms are downright bad. Seven years and then normal tax is, as always, not perfect. However it is far less damaging than the other parties’ proposals. Once again, Vince is the competent economic manager in the House.

  • Mark Auchinleck 20th Feb '08 - 12:32pm

    I retired from the Army in 2005 after a full career of 37 years. My wife was Australian when we married and acompanied me on all but operational tours, thus denying herself the opportunity to have a progressive career and to build a secure financial base in UK. In 2002 the government required her to acquire British citizenship in order to accompany me on a diplomatic posting. We have had just one full UK posting of 3 years in 28 years marriage. She has always paid Witholding Tax on her modest Australian assets, yet is now being asked to pay more – either full UK income tax or £30,000 annually – just to continue living with me in this country. This seems a very clear case of discrimination against those who have served this country – either in the Armed Forces, the Foreign Office or other institutions.

  • Perennially Bored 20th Feb '08 - 3:49pm

    Presumably she’ll only have to pay it when she’s living in the country and has been for 7 years. If you were in the country for 3 years and have now left again, presumably the 7 years would restart when you move back.

    Discrimination – if you hadn’t been in the Armed Forces/Dip Service you would presumably be paying tax on all your assets, so hard to see how this constitutes discrimination – can you explain your point further?

    Also, part of the basis for charging nondoms is that they use UK public services (the NHS, schools, etc) but under the current system don’t pay for them. If your wife has been living in this country for more than 7 years, it seems to me right that she should be paying tax – but certainly on the basis that any australian tax she paid would be deductible.

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