Labour's non-dom tax move is a gamble for economy, experts warn

Labour's promise to scrap the regime that allows wealthy foreign residents to pay limited tax represents a gamble for the UK economy, tax experts have warned.

While the pledge to abolish "non-domiciled" status, which allows people to exempt their offshore earnings from UK tax, could raise hundreds of millions each year, according to Labour, the reforms may prompt those affected to leave the country.

The overall impact of Ed Miliband's proposal, announced today, is "simply unknowable", said Piers Master, a partner at law firm Charles Russell Speechlys. "If the cost of remaining UK resident for [very wealthy] non-doms runs into millions of pounds a year, the decision for them to leave becomes easy."

Under the current regime, non-doms can opt to pay an annual charge of between £30,000 and £90,000 to only pay tax on their UK income. In 2012-13, the most recent year for which information is available, about 5,000 individuals paid the Exchequer a total of £223m through the "remittance" charge.

Mr Master said the removal of non-dom status would be "an own goal" if individuals opt to become residents in countries with more attractive tax regimes, and the UK not only lost tax revenues but also their spending in the wider economy.

"The trickle down of further wealth creation is very hard to quantify," said Iain Tait, a partner at wealth managers London & Capital, who fears that populist policies could undermine London's status as a global financial capital.

Mr Tait said the removal of the non-dom regime could be a tipping point for wealthy clients, who he said are increasingly thinking about relocating overseas.

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Overseas tax residents now also face paying capital gains tax on the sale of UK properties, although this will only apply to gains made above values from April 2015.

However, since the annual remittance charge was first introduced in 2008, official figures indicate that the number of non-doms electing to pay tax on this basis has barely fallen.

George Bull, senior tax partner at accountants Baker Tilly, said he does not believe that Labour's policy would lead to an exodus of wealthy non-residents.

Of the minority of non-doms who will be affected, it will probably only be those who are not working in the UK who will leave the country, Mr Bull said. For most executives, their employers will pick up the extra tax bill, he added.

Those who do not need to live in the UK can avoid any liability for UK income tax by ensuring they do not breach automatic "tie tests", including the amount of time they spend in the country in any tax year.

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