Peers and MPs will have to pay tax in Britain or be forced to give up their seat should the Tories win the next election in a move designed to end the controversy over its deputy chairman, Lord Ashcroft, and the high-profile candidate, Zac Goldsmith.
In a surprise announcement, David Cameron promised to rush through a law banning anyone with non-domiciled or non-resident tax status from the Commons or the Lords. The Tory leader has been dogged by questions about the tax status of Lord Ashcroft. His pledge also came on the day that Mr Goldsmith, his adviser on the environment and parliamentary candidate for Richmond Park, was accused of avoiding millions in tax through his "non-dom" status.
Gordon Brown had also been planning legislation that would have forced all MPs and peers to declare their tax status, but would not have banned them from taking up their seat. Sources at Number 10 said it was too late to embarrass the Tories by introducing the measure ahead of the next election. Mr Brown has been beaten to the punch by the Tories, who hope their law will also smoke out Labour and Liberal Democrat parliamentarians who do not pay tax in Britain.
"I think it time to pass a law that says that if you want to be in the Houses of Parliament, if you want to be a legislator, you need to be or be treated as a full UK taxpayer," Mr Cameron told Sky News. "We would pass that law if we get elected. We would bring it into force as rapidly as we could. I think that would put the situation beyond doubt." But he stopped short of forcing all MPs to publish their tax returns, a rule in the United States. "Do we need to know every single aspect of someone's tax affairs?" he said. "I don't think we do."
The Government accused Mr Cameron of using the announcement to put off the questions about Lord Ashcroft and Mr Goldsmith until after the next election. "He claims to offer transparency, but this is simply distraction and deferral," said Jack Straw, the Justice Secretary. "This is simply a brazen attempt to avoid clearing up the confusion about Lord Ashcroft, 10 years after he promised to clear up his tax status."
Lord Ashcroft, who has recently donated more than £5m to the Tories, committed to paying tax in Britain as a condition of being made a peer in 2000. Since then, he has not commented publicly on whether he has lived up to the pledge, insisting it was a private matter. Since January, the Electoral Commission has been investigating whether Bearwood Corporate Services, the company through which Lord Ashcroft channels money to the Tories, is legally entitled to make political donations. Parties can accept money only from companies trading in Britain. Mr Cameron insisted the donations were "within the law".
Mr Goldsmith, who has said he is changing his tax status, was accused by the Liberal Democrats of avoiding at least £5.8m through the non-dom tax status he inherited from his father, the billionaire financier, James Goldsmith. Mr Goldsmith dismissed the figure as "fantasy". His wealth, estimated at £200m, is held by a family trust in the Cayman Islands.
Under pressure: Politicians and their tax status
After admitting that he had inherited non-dom tax status, Mr Goldsmith, the Tory candidate for Richmond Park, is now changing his tax status after pressure from David Cameron.
The steel tycoon has told Labour that it will lose his support if non-doms are banned from making political donations. Under the Tories, refusal to change his status would see him kicked out of the Lords.
The deputy chairman of the Tory party pledged to become resident in the UK for tax purposes after receiving a peerage in 2000, but he has not yet confirmed his current status.
The Australian-born Tory is open about her non-dom tax status, but will have to either give it up or lose her place in the Lords should her party win the general election.