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Labour leader in key tax reform

Miliband pledges abolition of non-dom tax avoidance rule

Ed MilibandLabour leader Ed Miliband has made arguably the biggest pledge yet of any party on tax reform by saying he would abolish a key tax avoidance loophole.

By scrapping the so-called domicile rule it would mean those who live in the UK but claim it is not their permanent home would no longer be able to get away with current tax exemptions.

The non-dom rules, unique to Britain, are supposed to allow individuals not to pay tax on their overseas income. But they are also used to avoid tax on UK income and property.

While many non-doms are wealthy foreigners living in Britain, such as Chelsea FC owner Roman Abramovich and the steel magnate Lakshmi Mittal, the rules are used by people who were born, brought up and live in Britain but can claim non-dom status if their father (but not their mother) was born abroad.

Also, anyone born and brought up in the UK who has lived abroad for a while and then moved back, can pay less tax by saying that they plan to move abroad again in future, and can do this by doing simple things like buying a burial plot overseas or even subscribing to foreign newspapers.

Labour says the only exemptions should be those who are genuinely resident in the UK on a temporary basis – like students, or people living in the UK for a short time on business.

Duncan BannatyneBannatyne tweetThe announcement was greeted positively by Scots businessman Duncan Bannatyne, a signatory to last week’s letter to the Daily Telegraph supporting the Tories, who said tonight that Labour’s move would be enough to secure his vote.

Economist Richard Murphy was delighted with the news: “After eight years of campaigning on this issue my wish will be granted: if we have a Labour government the domicile rule will go.

“The significance of this cannot be overstated. For over a hundred years the UK has run a two tier tax system. That tax system meant that those who could claim the UK was not their permanent home could get away with only paying tax on their UK income and gains and on any income they brought to the UK from abroad.

“What this, inevitably, meant was that those who had wealth and who were not domiciled could hold that wealth outside the UK and not be taxed on it if it was, for example, located in a tax haven.

“A nail has been put in the coffin of the UK tax haven. That is because non-doms could be resident here and pay tax on only a part of their income, which was an advantage simply not available in any other equivalent country around the world. This will now end. The UK will no longer be a tax haven for this reason.

“More important, everyone in the UK will now be equal in UK tax law. It has been staggering that this has not been the case for so long, and vital that it becomes so for three reasons. First, it means the wealthy do not get an undue tax advantage. Second it means that the well advised cannot now abuse the tax system in this way. And third it means people coming from elsewhere to the UK will be on a level playing field with all those already here, which social justice demands.

“Finally, this means that the businesses owned by non-doms cannot access cheaper capital than those owned by domiciled people. The result is a level playing field for UK owned businesses that means that this change should be widely welcomed by the business community.”

Worries will arise that closing the loophole will lead to an exodus of wealthy non-doms. A second concern is a collapse in London house prices, and a third is a collapse in tax revenues.

However, Mr Murphy said only a handful of individuals would leave. “There is nowhere else for them to go that is equivalent: London is the place to be and be seen and this rule change will not alter that,” he said.

“Second, despite the threats on previous residence rule changes and on higher tax rates almost no-one ever moves for tax purposes. Quality of life is more important than that, especially if you are already very wealthy. And third, the UK still has favourable taxes compared to most places even if they have to be paid in future. So only a very few will go, and we will not miss them.”

He added that if house prices fall at the top end it would be good news for most Londoners who are priced out of the housing market.

 

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