Budget 2015: 'Non-doms' will be forced to pay full tax on foreign earnings

However, George Osborne stopped short of abolishing the status altogether

Billionaire owner of Chelsea football club Roman Abramovich is reported to be among prominent registered non-doms (Getty Images)

Wealthy foreigners who live permanently in Britain will be forced to pay full tax on their foreign earnings, although George Osborne stopped short of abolishing the “non-dom” tax status altogether.

The move, which will come into force in two years’ time, will raise £1.5bn over five years for the Treasury.

Britons who currently qualify for non-dom status because their father was born overseas will also lose their eligibility.

The Conservatives were thrown on the defensive during the general election campaign when Labour pledged to scrap the controversial tax breaks within a year of taking office.

Non-doms are either rich foreigners who are resident in the United Kingdom, or Britons with ties overseas who are not eligible for tax on overseas income if they register their permanent home (“domicile”) as outside of Britain.

Around 116,000 UK residents enjoy the benefits of the status, which dates back to around the times of the Napoleonic wars.

Mr Osborne told MPs that abolishing it outright would cost Britain money, saying many non-doms “make a considerable contribution to our public life and tax revenues”.

But he added: “There are some fundamental unfairnesses in the non-dom regime.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.

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“Non-dom status was meant to be temporary,” Mr Osborne continued. “But it became permanent for some people. Not any longer.”

He said anyone living in Britain for more than 15 of the past 20 years would now pay full UK taxes on all their worldwide income.

He also promised to close the loophole which enables people with foreign fathers to claim the tax break even if they have been brought up in this country.

Mr Osborne was warned last night that his initiative could prompt wealthy people to leave Britain for other countries that have more favourable tax regimes.

Simon Baylis, a partner at the accountancy firm Moore Stephens, said: “The new ‘15 out of 20 years’ rule is likely to push a considerable number of high-net-worth individuals out of the UK. Most will not see moving to a more favourable jurisdiction as a major problem – they are already highly internationally mobile.”

He said: “Alongside the traditional choices such as Switzerland, some non-doms may target other jurisdictions such as Spain and Portugal as potential destinations.”

Alex Henderson, tax partner at the accountancy giant PwC, said: “Changes for non-doms weren’t unexpected after the attention they received in the election campaign, but are a game changer for those affected. Non-doms who have been in the UK since 2002 will come within the full UK tax regime in 2017.”

Under Labour’s plans, the status would have been scrapped in April 2016 and replaced with a general presumption that anyone permanently resident in the UK would be liable to pay tax on all their income.

Former Labour leader Ed Miliband said the money raised from closing an “increasingly arcane 200-year-old loophole” would be used to reduce the deficit. He protested that some people registered as non-doms on the basis of little more than an overseas newspaper subscription or a foreign burial plot.

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Billionaire owner of Chelsea football club Roman Abramovich is reported to be among prominent registered non-doms.

Others include steel tycoon Lakshmi Mittal and Dragons’ Den entrepreneur James Caan.

In February, it emerged that HSBC’s chief executive, Stuart Gulliver, had benefited from the status despite his job being based in Britain.

The Bank of England has confirmed that its governor, Mark Carney, a Canadian, is registered as a non-dom.

Tory MP for Richmond Park Zac Goldsmith, inherited the status from his father, but gave it up before becoming an MP.