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Labour pledge to scrap non-dom tax status

Ed Balls: 'I think if you abolish the whole status then it probably ends up costing Britain money'

8 April 2015

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Ed Balls: 'I think if you abolish the whole status then it probably ends up costing Britain money'

A Labour government would scrap the non-domiciled tax status which allows certain UK residents to avoid paying tax on their overseas income.

Labour Party leader, Ed Miliband, has said that the tax status 'cannot be justified' and 'makes Britain an offshore tax haven for a few'.

A non-dom is an individual who is based in the UK but is not categorised as being UK domiciled, so only pays tax on UK income.

A UK domiciled individual has to pay tax on their UK based income as well as overseas income.

Miliband added: 'There are now 116,000 non-doms. It is costing at least hundreds of millions of pounds to our country… we've found a way to do this which independent experts say is actually going to raise money'.

However Tom Elliott, a private client partner at tax and advisory firm Crowe Clark Whitehill, disagrees. He thinks it is impossible to calculate just how much the measure would save Britain.

'It is impossible to quantify the benefit that the UK receives from wealthy foreigners coming to the UK (not only do they create jobs but they also spend their wealth here) so the effect on tax receipts of such a move is uncertain, something that has already been highlighted by Mr Miliband's shadow chancellor.'

The policy is in contrast with comments made by Labour shadow chancellor, Ed Balls, where he said that completely abolishing the tax status could end up costing Britain more money than it saves.

'I think if you abolish the whole status then it probably ends up costing Britain money because some people will then leave the country,' he commented earlier this year.

James Hender, head of private wealth at accountancy firm Saffery Champness, suggests that the policy could push wealthy British residents into the arms of more generous tax jurisdictions.

'This change could be the last straw for certain people who are being hit with higher taxes from different directions, including the proposal for a mansion tax on their properties,' Hender said.

'There are other jurisdictions, such as Hong Kong, which offers both a lower tax rate and also only taxes locally sourced income, which will welcome them.'

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Tax & Wealth structuring