Treasury 'clarifies' non-dom levy
Darling accused of second policy U-turn
Wednesday, 13, Feb 2008 12:00
The Treasury has been accused of a climb-down after "clarifying" details of its plans to tax wealthy foreigners living in the UK.
Non-domiciles will still be hit by a £30,000 fee after living in the UK for seven years but the Treasury has abandoned controversial plans to tax their foreign income.
The measures have been bitterly attacked since they were announced in the autumn, with critics claiming they could force an exodus of wealthy investors from the City and cost the economy as much as £2 billion.
As many as 120,000 people are registered as non-doms, mainly City workers and the 'super-rich'. A further six to eight million people live in the UK while being registered for tax overseas.
The issue was forced onto the political agenda during party conference season, when the Conservatives proposed a one-off levy of £25,000 for non-doms.
The government responded with proposals for a £30,000 fee after being resident in the UK for seven years.
Non-doms would also need to provide details of foreign incomes and pay tax on income and capital gains from offshore trusts.
It is these latter proposals that have now been dropped by the Treasury, in a letter of "clarification" sent by Dave Harnett, acting chairman of HM Revenue and Customs, to City tax advisers.
The Treasury denied it was overseeing a second U-turn after last month's retreat over capital gains tax.
Chief secretary to the Treasury Yvette Cooper said: "There have been some misunderstandings as a result of some the detail of the consultation document - things that were never intended - and we have clarified that."
Speaking to BBC Radio 4's PM programme she blamed the wording of the draft legislation for the misunderstandings.
The Liberal Democrats said the government had made an "unholy mess" of its attempts to reform non-dom status and had been left looking "foolish".
But Lib Dem economic affairs adviser Vince Cable also criticised the "outrageous special pleading" from the City and "wildly exaggerated" warnings of the effect of a clampdown on non-doms.
He said: "British taxpayers do not understand why they should pay 40 per cent top rate tax, while the super-rich may pay little more than council tax on houses worth tens of millions."
The Conservatives leapt on the "clarifications" as further proof of the government's "dithering".
Shadow chancellor George Osborne said: "In times of economic uncertainty, people need a chancellor who can demonstrate strength of leadership and consistency of judgement. With Alistair Darling, we have neither."