Non-doms: who they are and why Labour wants to scrap their tax privileges

Labour wants to abolish the non-dom tax status. Why?

Hazel Sheffield
Wednesday 08 April 2015 12:26 BST
The Labour party has said it will scrap the non-domiciled tax status
The Labour party has said it will scrap the non-domiciled tax status (PA)

The Labour party has said it will scrap the non-domiciled tax status – or the special tax privileges bestowed on foreigners living in Britain – should it get into power.

Ed Balls has said the government could get hundreds of millions of pounds from closing the loophole, which has existed for hundreds of years. But the figures are vague.

Opponents of the plan say it would mean skilled migrants move to other, lower tax jurisdictions, denying the UK millions of pounds of tax that these people currently pay.

We take a look at the facts below:

Lord Ashcroft, a former Tory peer in the House of Lords, admitted to holding non-dom status in 2010

Who are non-doms?

A non-domiciled resident is someone that is born outside the UK and now lives here, but intends to return to their home-country. It is a peculiarly British status that can be passed through generations.

Zac Goldsmith, for example, inherited his non-dom status from his father Sir James Goldsmith, even though he was born at Westminster Hospital in London – a fact that caused some embarrassment when he stood as a Tory candidate for Richmond in 2009 (he later relinquished the status).

Zac Goldsmith inherited non-dom status from his father Sir James Goldsmith

Aren’t loads of UK residents born elsewhere?

Yes – one in eight UK residents were born elsewhere. But not all of them claim non-dom status. Just 116,000 people have told HM Revenue & Customs that they are non-doms. Only a few thousand of these pay annual fees to keep the status beyond seven years.

Those fees are steep, which is why non-dom status is seen as the preserve of the wealthy. Non-doms who have been in the UK for seven or more years have to pay £30,000 annually to claim full tax perks, while those who have been here for at least 12 years must pay £50,000 annually. In December 2013, George Osborne announced plans for non-doms that have lived in the UK for 17 of the last 20 years to pay an annual charge of £90,000. That kind of cash is probably unattainable for all but the very rich.

What privileges do these non-doms get?

Individuals with non-dom tax status pay tax on their UK earnings, but do not have to pay UK tax on foreign income, as long as they do not transfer those earnings to the UK. They are not tax dodgers. But large parts of their income elsewhere is not counted for tax in the UK, unlike in the US, where residents pay US tax on all of their earnings.

Some non-taxable income could make it back into the UK anyway. Non-doms might use offshore trusts to buy expensive UK homes or loan money to themselves and collect interest-free tax repayments.

James Caan was born in Pakistan and holds non-domiciled tax status in the UK
James Caan was born in Pakistan and holds non-domiciled tax status in the UK (BBC)

Duncan Bannatyne has been outspoken about these rules. In an interview with Business Matters Magazine in 2010 he noted that two of his colleagues on 'Dragons' Den' have non-dom status: Doug Richard and James Caan. "Does this status give Doug Richard and James Caan and unfair advantage in the business sectors? I think that it would be safe to assume that it does," he said.

Labour described it as “a set of loopholes that simply isn’t available to most working families in Britain”.

Duncan Bannatyne has come out in support of the Labour pledge

Seems a bit outdated. Why hasn’t anyone looked at scrapping non-dom status before?

Actually they have – both Gordon Brown and George Osborne looked at scrapping the tax. They decided not for fear of losing more in tax by getting rid of it altogether. Brown is said to have faced intense opposition from Greek shipping magnates and specialist financial advisers.

Why is Labour so keen to do it now?

Scrapping the tax shows Labour cracking down on tax loopholes for the wealthy - which looks good in the run up to an election.

Ed Balls told BBC Breakfast the changes will raise “at least hundreds of millions of pounds”. Even he had to concede that it’s very difficult to say exactly how much.

“Of course it is very uncertain because we do not know how much income people have in this country, people who aren't paying tax in the same way as everyone else,” Balls said.

Labour has proposed that no new people will be able to claim non-dom status after April 2016. Existing non-doms will have a few years to adjust their tax affairs and those who are only here temporarily – students, for example – should receive an exemption, Labour says.

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