11 February 2008

Daily Telegraph: Non-dom plan 'to cost Alistair Darling £2bn'

Alistair Darling's tax crackdown on Britain's non-domiciled residents will end up costing the Treasury more than twice the sum the Chancellor expects it to raise, a new study has calculated. The Treasury is expecting to raise an extra £800 million a year by 2010 from a £30,000 annual tax on wealthy non-doms, as part of an effort to cut public sector borrowing.

But the study warned that the non-dom plan will cost the Government £2.1 billion in lost tax receipts due to "capital flight", in which wealthy individuals leave the UK and take their money with them. Even the Treasury has admitted that 3,000 of the wealthiest nondoms could leave the UK as a result of the tax plans.

According to tax experts at the Society of Trust and Estate Practitioners, non-doms pay £7.16 billion in tax annually. The society has calculated that the departure of the richest would cost Mr Darling more than £2.1 billion.

David Harvey, the society's chief executive, said: "We want rich people in the economy, paying tax and creating jobs, but Government plans will have the opposite effect." That warning has been echoed by one of the Treasury's own advisers, who fears the tax proposal will drive international financiers abroad.

Bob Wigley, a Merrill Lynch banker who advises the Chancellor on retaining London's status as a global finance centre, said the tax plan "was ill-conceived from the start". He added: "These measures were partly aimed at the non-domiciled billionaires. They could, if not withdrawn or substantially amended, drive away offshore, young up-andcoming talent that currently choose to live in London and make London the leading global financial centre."

Some wealthy individuals have already left the UK, worried about the uncertain future the country offers for their business affairs: at least 25 Greek shipowners are said to have closed their London offices and registered their business elsewhere. The figure was disclosed in a written plea to Mr Darling from maritime groups including Lloyd's, the insurance market, the Baltic Exchange and the Chamber of Shipping.

Leading galleries and museums also fear the new rules will cost them major donations, as the tax rules will make it more expensive for people to bring artworks into the UK.

Under current tax laws, people resident in the UK can register for "non-domiciled" status, meaning they pay no tax on earnings outside the UK.

Under plans due to take effect in April, anyone who has claimed non-dom status for seven of the last 10 years will have to pay an annual fee of £30,000 to the Exchequer.

The Treasury says there are around 116,000 people in Britain who have non-dom status. They include tycoons like Lakshmi Mittal and many Greek shipping magnates, but the vast majority work for banks, hedge funds and private equity firms in the City. Opponents of the Treasury plan claim non-doms have brought investment into the country and generated wealth that spreads throughout the country.

The Treasury has said the final detail of the tax plan is not fixed, raising hopes of a climbdown before the final package is announced next month.

© Daily Telegraph