Labour leader Ed Miliband
Labour leader Ed Miliband © PA

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 announced on Wednesday.

Mr Miliband claimed that the non-dom rule was not used by any other major economy, costs Britain hundreds of millions of pounds a year, and had 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 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 said in a speech at Warwick University. He said there was 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.

Mr Osborne claimed Labour’s new policy was “just tinkering around the edges and making small adjustments to the rules on how long people can be non-dom”.

While Mr Osborne attacked the “confusion” of Labour’s policy he did not reject it out of hand.

An annual charge of £30,000 is levied on people who have been in the UK for more than seven years, but the fee is seen as preferable by many non-doms to paying tax on their overseas earnings.

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”.

The policy won immediate backing from an unlikely source in the business community. Duncan Bannatyne, the entrepreneur and star of the television programme Dragons’ Den, tweeted: “This gets my vote. I never thought any party would have the courage to do this.”

Mr Bannatyne last week signed the letter to the Telegraph backing the Conservative’s economic policies, but told his followers he had changed his mind on the back of this policy proposal by Mr Miliband.

Responding to extracts of Mr Miliband’s speech, a Conservative spokesman said: “Ed Miliband did nothing about aggressive tax avoidance and evasion for 13 years — the number of non-doms exploded under Labour.

“We’ve increased the non-dom levy and cracked down on wealthy foreigners who avoid tax by ensuring they now pay stamp duty on their properties. What Ed Miliband still has to do is set out a proper economic plan to secure Britain’s future.”

Ed Balls told the BBC on Wednesday morning that previous Labour governments had not tackled non-dom tax rules because they had prioritised other measures.

Mr Balls claimed the Labour policy could raise about £1bn, depending on how non-doms reacted to the rule change, although he said the economic impact of the policy was “very uncertain”.

“People are already paying hundreds of millions of pounds to avoid paying tax on their global income,” he said.

Michael Gove said the plan to scrap non-dom status could lead to “talent flight”.

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.

Additional reporting by Aliya Ram

Letter in response to this report:

Updating the system is hardly revolutionary / From Giancarlo Sallier de La Tour

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