Some children as young as seven will be forced to sign up for income tax or have to pay £30,000 a year under the Government's plans to levy an annual charge on all non-domiciled residents in the UK.

The Government's proposals, due to come into effect next month, say that all people who are not domiciled in the UK will be forced to pay an annual charge of £30,000 to escape having their worldwide assets taxed by British authorities.

Children of non-doms will have to pay the levy if they have income or gains arising outside the UK, even if they were born here.

All babies have the same domicile as the adult on whom they are legally dependent until they are 16, regardless of where they were born. They will be exempt from the rules for the first seven years, because the regulations apply only for non-doms who have been resident for that length of time.

Children who move here when they are young will also be exempt for the first seven years.

This has compounded fears that non-doms may move elsewhere rather than pay the charge. A family of four, each of whom has substantial income from outside the UK would have to pay £120,000 a year to stay here, or nearly £200,000 before tax if the parents pay the charge from UK income.

The new rules say that anyone - adult or child - who has foreign income or gains of £1,000 or more must either pay income tax or choose to pay the £30,000 levy.

Accountants say that paying income tax will be cheaper for most people unless they receive income of £75,000 a year from overseas.

Children who receive any foreign income will have to fill in a self-assessment form, although they will be able to benefit from the tax-free personal allowance of £5,435 if they choose to pay income tax.

Children domiciled in the UK do not have to register for income tax unless they receive income of more than the personal allowance.

Schoolchildren whose school fees are paid for by trusts set up by family members overseas could avoid the charge. In most cases, the trustees oversee payment of fees, meaning the child is excluded from the transactions. But any income paid direct to the child will become liable for tax.

The most recent Treasury figures show that 112,000 individuals claimed non-domicile tax status on their tax return in 2004-05. It is thought that thousands of children receiving money from family members overseas or offshore trusts may be forced to register with HMRC from April.

Bill Dodwell, partner at Deloitte, the accountant, said: “We think it would be fairer for the £30,000 charge to be levied per family rather than per person.”

This comes amid widespread criticism of the Government's plans. This week Richard Lambert, the director-general of the CBI, said the Government had failed to give the new non-dom rules sufficient thought before announcing them at the Pre-Budget report in October.

He said: “The impact for the UK is potentially serious. People like stability and predictibility and don't like surprises, especially when it comes to their personal finances. This [non-domicile rules] and the new capital gains tax rules fail that test.”

Earlier this week one of the Chancellor's key business advisers described the rules as a return to old Labour.

City verdict on the Chancellor

—Alistair Darling should resign over his handling of the Northern Rock debacle and tax changes on capital gains and non-domiciled residents, according to 80 per cent of City investors and managers surveyed.

—Up to 60 per cent of executives questioned believe that the Chancellor will not last the year.

—One in five believes that he will be sacked within six months.

—The Cantos City Panel survey, to be published on Monday, shows that only 36 per cent of City executives are confident that the Chancellor will survive the year.

—Mr Darling will be spared the epitaph of having made the biggest mistake by any postwar Chancellor to date. That goes to Gordon Brown, for selling 60 per cent of Britain's gold reserves at an average price of $275 an ounce - close to its 20-year low.

—Almost 56 per cent said that this was by far the worst decision made since 1945. Indeed, Northern Rock does not even warrant second place, with John Major's decision to enter the European exchange-rate mechanism in 1990 taking the runner-up spot.

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