Labour threatens to end non-dom tax loophole

Britain's 200-year-old "non-domicile" regime, a tax rule exploited by wealthy executives, Russian oligarchs and the jet-set, would be abolished by an incoming Labour government, Ed Miliband will announce on Wednesday.

Mr Miliband will claim that the non-dom rule is not used by any other major economy, costs Britain hundreds of millions of pounds a year, and has turned the country into "an offshore tax haven for a few".

The Labour leader expects the move will trigger claims that some of Britain's 116,000 non-doms will leave the country, but he believes that the threat of an exodus is bluster.

"I just don't believe the way we compete in the world is as an offshore tax haven," he will say in a speech at Warwick University. He will say there is a "moral" case for non-doms to pay more of their taxes in Britain.

The proposed abolition of a tax system introduced by William Pitt the Younger in 1799 is a striking move by Mr Miliband to illustrate his willingness to take on the rich and powerful.

Non-dom status allows those who live in Britain - - often for many years - to cite another country as their real domicile. Unlike other residents, they are only obliged to pay British tax on their overseas earnings if they remit that money to the UK.

Mr Miliband's move creates a problem for George Osborne, the Conservative chancellor of the exchequer, who now faces the question of whether to defend a system which he acknowledges has been open to abuse.

In his last Autumn Statement Mr Osborne tightened the rules, increasing an annual charge for those non-doms who have lived in Britain for 17 of the last 20 years from £50,000 to £90,000.

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Under Mr Miliband's plan Labour will abolish the non-dom loophole - originally established so that colonial property owners were only taxed when their ships came into port - from April 2016.

There would be new rules for temporary residents - such as people seconded to the UK on business or work - who would just be taxed on income and gains in Britain.

This "temporary period" will be the subject of a consultation but is expected to be set at no more than four years. A transition period of no more than two years would "allow existing non-doms to get their affairs in order".

Labour says it is impossible to say how much tax is foregone under the existing arrangement.

Mr Miliband's move will help to answer questions about how he would tackle Britain's deficit - still running at more than 5 per cent of GDP - but the move is perhaps more significant for its politics.

Tony Blair, the former Labour prime minister, welcomed footloose international executives to London during the last decade and saw Britain's attractive tax regime as a means of bringing investment to the UK.

Mr Miliband's team says there have been no non-dom donations to the Labour party since he became leader in 2010.

The issue hit the news again recently after it emerged that Stuart Gulliver, the HSBC chief executive, has non dom status, in spite of running a UK-headquartered bank.

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