CBI blasts non-dom tax
Alistair Darling should scrap his plans for a non-domicile tax immediately the Confederation of British Industry said today as it joined the growing chorus of critics of the controversial plan.
At the least, it want the Chancellor to postpone April's start date of the legislation by at least 12 months and to begin a proper consultation and risk assessment.
"Ill-conceived government proposals to impose swingeing tax changes on non-doms are damaging the UK and should be scrapped and started again," the CBI said.
The proposals, to impose a £30,000 charge for residency in the UK, send out a message that the UK no longer wants to be an attractive place for foreign talent to work, and are damaging confidence in the stability of the tax regime, the statement added.
"At a time of growing economic uncertainty it is vital we do all we can to keep wealth generators and their businesses in the country, not make them feel unwelcome and drive them out," said Richard Lambert, the director-general of the business lobby group.
"Non-doms have been an important part of the UK's economic success and prosperity for many years, and successive administrations have provided a warm welcome. Partly as a result of their presence London is the world's leading financial and business centre," he went on.
"However the rushed and confused approach to this legislation, which appears to be driven by political and fiscal needs rather than policy principles, has been greatly damaging. Confidence in the UK as a country which does not spring nasty surprises has been undermined, while the rushed approach has forced those affected to make decisions on the basis of confused proposals, " Lambert added.
The CBI said that its own analysis of the non-dom proposals had thrown up "serious questions" about its ability to raise the revenue claimed. It also wants the fee to apply to families, not individuals, and for the fee to be allowable against US tax returns giving the US position as the biggest foreign investor in the UK.
There are about 120,000 non-domiciled in Britain. Under plans due to take effect in April, anyone who has claimed non-dom status for seven of the last ten years will have to pay an annual fee of £30,000 to the Exchequer.
Mr Lambert said that embattled Chancellor Alastair Darling should put back implementation of the legislation for 12 months, adding that: "The rushed and confused approach to this legislation, which appears to be driven by political and fiscal needs rather than policy principles, has been greatly damaging."
The CBI's salvo came as the head of Britain's private equity industry said that the non-dom legislation could trigger a flight of capital from London's key financial services industry.
advertisementSpeaking at the SuperReturns private equity conference in Munich, Simon Walker, head of the British Venture Capital and Private Equity Association, added to the weight of criticism over the policy and cited a newspaper advertisement from a property company in Zurich urging non-doms to go and live there.
Subsequent attempts to deal with the concerns have added to the problems and contributed to the impression of policy-making on the hoof.
And CBI analysis of the Treasury's own figures has also thrown up serious questions about its ability to raise the revenue it has claimed.
In this light the CBI is urging the Chancellor to postpone April's start date of the legislation by at least 12 months and to begin a proper consultation and risk assessment.
Unless this happens, the CBI fears, the UK will see foreign talent and capital head home or to more attractive countries along with much goodwill towards the country.
The impact will be felt hardest in the financial services industry, the UK's fastest growing sector over the past decade, and reach into many other parts of the economy too.
(Article continues below)Advertisement
To support its concerns the CBI has submitted a detailed response to the Treasury's draft legislation and Richard Lambert, CBI director-general, said:
"Non-doms have been an important part of the UK's economic success and prosperity for many years, and successive administrations have provided a warm welcome. Partly as a result of their presence London is the world's leading financial and business centre.
"However the rushed and confused approach to this legislation, which appears to be driven by political and fiscal needs rather than policy principles, has been greatly damaging.
"Confidence in the UK as a country which does not spring nasty surprises has been undermined, while the rushed approach has forced those affected to make decisions on the basis of confused proposals.
"The draft proposals have been bedevilled by problems and despite attempts to clarify some aspects there are still a plethora of outstanding issues which need to be resolved before any changes become law.
"By announcing a 12 month delay the Treasury would buy time to consult properly and iron out the confusion and inconsistencies whilst delivering breathing space to non-doms to plan their affairs properly."
Mr Lambert added: "At a time of growing economic uncertainty it is vital we do all we can to keep wealth-generators and their businesses in this country, not make them feel unwelcome and drive them out.
"The Chancellor needs to rethink these plans and use his Budget in a fortnight's time to assuage some of the anger felt in the non-dom and wider business community towards the government, particularly after the capital gains tax fiasco."
In its submission to the Treasury, the employers' organisation has raised the following concerns:
Using Treasury figures, the CBI cannot understand how HMRC will raise the £800m in 2008/9 and £500m in 2009/10 that it has forecast. It would like to see the evidence and if this cannot be provided, urges the Treasury to review the proposals in the light of the damage caused.
If it decides to go ahead, the proposed £30,000 fee to allow non-doms to keep their offshore financial activities beyond the reach of the UK taxman should apply to families, not individuals, to keep the system simple and fair.
The Treasury should work with its counterparts in the United States to make the £30,000 fee creditable against US tax returns. The US is the biggest foreign investor in the UK and its companies generate huge wealth in this country.
The Treasury should explicitly state in the legislation that there will be no retrospective element to the taxes, with a simple, accepted process to revalue assets to April 06 for capital gains purposes. Retrospection goes against accepted principles of tax policy-making and this is one of the biggest concerns for non-doms.
HMRC needs to make crystal clear which assets held in offshore trusts will be taxed and which will not so non-doms have certainty in their tax planning.
HMRC ought to abandon the 91 day average test for UK residency and move to a simple position which places it ahead of or in line with international rivals. France, Spain, Germany, Italy, Ireland, Australia, New Zealand and Canada allow 183 days while the US has a 120 day limit. The finer details of the rules also need to be made clear, particularly regarding transit and work issues.
To assist in the process of proper consultation and risk assessment the government should delay the legislation's implementation for at one year, and when it finalises its policy should issue a statement of assurance that it won't be tinkered with again for at least five years.
