Property lawyers may enjoy a short-term boost while their wealthier clients sell off their London homes, but new tax plans aimed at rich individuals who are not domiciled in the UK for tax purposes — non-doms, in other words — have received a resounding thumbs down from the British legal profession.

More than two-thirds (69 per cent) of lawyers told Legal Week that the Government's proposals, which include hitting non-doms with a £30,000 annual levy after seven years, were either “potentially damaging” or “very damaging”. Their reasons vary but they reach beyond the short-term risks of losing clients when they leave the UK. Rather, lawyers are concerned about the longer-term damage that alienating non-doms might have on London as a financial centre.

Since the plans have yet to be finalised and there is some natural paralysis around shifting jurisdictions so near to the end of the tax year, there has been more political noise than concrete evidence so far. But private client lawyers — some of whom are aggressively lobbying the Government to soften or abandon their plans — are reporting that non-doms are preparing to leave.

Judith Ingham, a partner at Withers, says the proposals had created “enormous disquiet” among non-doms. “Many people are saying they are absolutely minded to leave the UK. Some will wait until the end of the tax year [April 4] while others are doing it now,” she said.

The Government’s sudden change of tack has also got these lawyers wondering what will be next. Peter Greswold, a tax partner at Wrigleys, says that two of his City-based non-dom clients have already decided to leave. But he insists: “It is not the tax charge which bothers them but the fundamental uncertainty and the feeling that having been encouraged by tax breaks to establish here they are now fair game for a cash-strapped Government.”

Many advisers also believe that the Government has drastically underestimated non-doms’ willingness to move elsewhere. Harold Paisner, senior partner at Berwin Leighton Paisner, calls the proposals “bizarre, foolish and shortsighted”, in part because non-doms “are much more mobile than the population as a whole”. Stephen Paget-Brown at Travers Smith says that “many will inevitable move to Switzerland, Ireland, Monaco or elsewhere”.

Another reason lawyers are in a flap is because the proposals make them look professionally impotent. Ingham calls the drafts “patchy”, adding that there was “precious little to work on” when it comes to actually advising clients on what they might mean. This puts lawyers in an embarrassing situation: having to tell clients they simply do not know what to do. As they stand, the proposals are an unknown threat — and until they know their enemy, lawyers cannot start thinking about how to defeat it.

Perhaps selfishly because so many of their practices depend on it, lawyers were most vociferous at the wider implications of chasing away non-doms. Paisner summarises the mood when he says: “An extraordinary amount of the country's wealth and position is attributable to London being the financial centre of Europe. To raise a few hundred million pounds, maximum, in return for jeopardising this seems bizarre and shortsighted.”

Daniel Tunkel, a financial services partner at SJ Berwin, believes the consequences of driving away non-doms “could be disastrous for the UK financial services industry”; he also says the country as a whole “will pay a much larger invisible price than the Government of the day raises in tax revenue”.

The most damning verdict comes from SJ Berwin’s Simon Witney, who believes the damage is already done. “There is no question that recent Government announcements on tax have already damaged the UK's position. The changes can only serve to undermine the competitive edge of the UK and the economic environment across Europe at a time when the UK financial services industry is reeling from the impact of last year’s credit crunch, is worried about the world economy and is being wooed by other countries that are jealous of London’s position.

“Affected taxpayers have insufficient time to adjust to the changes, and are left with a sense that the Government is prone to hurried and capricious rule changes.”

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