Alistair Darling has dropped key parts of his controversial plans to tax non-domiciled foreigners living in Britain in the face of unprecedented opposition from business and the City.

The Government, faced with a growing political storm over Mr Darling's so-called "non-dom" tax proposals, outlined the u-turn in a letter sent today to tax lawyers and specialist accountants by David Hartnett, the acting chairman of HM Revenue & Customers.

A copy of the letter has been passed to The Times.

Mr Hartnett, the most senior civil servant within the government department, described the changes as a clarification of what had always been Government intentions.

In the letter, Mr Hartnett says the government will not force individuals to disclose their worldwide income as long as they declare their UK income and pay tax on it.

The government has dropped the retrospective element in the treatment of trusts and the tax proposals will not apply to gains realised before the changes come into effect.

The Treasury denied the letter represented a policy reversal.

"It's not a u-turn. If there are errors in the drafting, that was highlighted in the consultation. The Government's policy intent was announced at the outset. As part of the consolution we put out the draft proposal. We are clariifying what has always been the intention," a spokesman said.

Mr Darling sparked a furious response when he first outlined plans in his pre-budget report last year that would force non-doms who had been resident in the UK for seven years to pay an annual fee of £30,000.

Entrepreneurs, including leading private equity and hedge fund figures, gave warning that Mr Darling's proposals would lead to a mass exodus of the wealthy and talented to other lower-tax locations such as Switzerland, Dubai and Ireland.

Mr Darling also said in his letter, that money brought into the UK "will not itself be taxable".

"It will continue to be possible to bring art works into the UK for public display without incuring a charge to tax," the letter states.

"In addition, we will continue to discuss with the US authorities how the £30,000 charge can become creditable against US tax."

It remained unclear today whether Mr Darling's non-dom u-turn would be enough to mollify opposition.

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