Wednesday night. Cipriani, off Berkeley Square. A quiet family party at the
back are speaking heaven-knows-what and eating Italian comfort food at £65 a
head. A posse of hungry-looking money men in suits swallow champagne before
being shown to their table. They are distracted (as am I) by two beautiful
women sinking bellinis at the bar. And through the revolving door comes a
man with a name like Davos. He has a furry torso busting out of his blazer,
and a Blancpain watch the size of a beer mat.
Federico, the maître d’, goes through an elaborate pretence of not knowing who
Davos is, then yells at the white-jacketed staff to fix him his usual
apéritif and seat him at table 28.
Are these the creatures I have been looking for? The favoured ones, whom fate
has blessed with money and the taxman with the mother of all loopholes? Are
these the people who have made London the most cosmopolitan and expensive
city in the world; the steel-smelting, penthouse-collecting Brahmins of
21st-century Eurasia? The people who, though they pay little UK tax, may
contribute as much as £5 billion to the economy in other ways? Are these the
wildly rich, non-domiciled UK residents known to their accountants as
non-doms?
One of Federico’s colleagues has rashly confirmed as much over the phone.
Another close observer of the scene has identified this place, along with
Annabel’s and the George nightclub, as prime non-dom party locales. But they
are safe here. Federico will only shrug. “This is London,” he says. “They
come from everywhere.”
Of course they do. But London should not kid itself. It’s not Gordon Ramsay
who secures for W1 the continued patronage of Roman Abramovich and Boris
Berezovsky. It’s not the Royal Ballet (as far as we know) that induced one
Qatari to pay £100 million for an as-yet unbuilt flat on Hyde Park. And it’s
certainly not the weather that attracts the foreigners who comprise roughly
half the hedge-fund managers in London, the hedge-fund capital of the world.
Above all, it’s the tax system, which takes 40 per cent of the average
middle-class family’s earnings but only token amounts off non-doms, and then
only if they are honest. This is the system that, in April, led the IMF to
bracket London with Bermuda as an “offshore financial centre” (translation:
tax haven).
Yet it is also a system that, for all its apparent iniquities, has put the
international ultra-rich in the service of UK plc to the extent that we may
no longer be able to manage without them. As one sage has put it, for
Britain to tinker with its non-dom laws would be like Saudi Arabia giving up
its oil.
Even so, tinkering is what both main political parties plan to do, with
incalculable consequences.
On Monday, George Osborne thrilled the Conservatives with his promise of an
end to inheritance tax as we know it, and he promised to fund this promise
with a £25,000-a-year levy for the privilege of non-dom status. He claimed
that this could raise up to £3.5 billion.
Osborne’s pledge has triggered a furious political row over non-dom numbers.
Broadly defined, non-doms include all foreigners in Britain. No one knows
how many there are, let alone how many would find it worthwhile to pay the
levy rather than pay UK tax on all their worldwide income. The Shadow
Chancellor put the figure at 150,000. Labour hit back with 15,000 – but the
Treasury has since disowned the smaller figure, and so has much of the
high-end accountancy profession.
“Labour’s numbers are nonsensical,” says Mike Warburton, of the City firm
Grant Thornton. On the basis that the numbers filing tax returns as non-doms
nearly doubled to 112,000 between 2003 and 2005, he finds an estimate of
150,000 to 200,000 for 2007 “entirely reasonable”. More to the point,
Warburton believes that at least 120,000 of these will have enough foreign
assets to want to protect them by paying the levy rather than UK tax.
One-nil to the Tories, then. But what do the non-doms themselves make of
paying £25,000 a year for a status that they have enjoyed free of charge for
decades?
And who are they?
They fall into three broad categories. By far the most conspicuous are the
über-rich, who work only if they want to, whose assets are genuinely global,
and who regard an Osborne-style levy as small change.
Frederick, a Belgian banker, is non-dom-eligible by virtue of his passport.
It’s as simple as that, for as long as he chooses to live in London: “My
advisers have always told me to just tick the non-dom box [on my tax
return],” he says. Then his non-UK income and capital gains need not be
taxed by anyone.
Speaking carefully, in the third person, Frederick says of the £25,000 levy:
“For people with [foreign] assets, it doesn’t matter. It’s nothing, not
important.”
Chump change, in other words – and this is the overwhelming consensus of the
seriously rich and those who minister to them. To the non-doms who walk into
Nico Valdes-Scott’s Chelsea branch of Strutt & Parker in search of
London accommodation, £25,000 is “like a couple of quid”. To those who read
Spears Wealth Management Survey, edited by William Cash, it’s “not even the
service charge in a decent apartment block near Hyde Park”.
The tip of the non-dom iceberg will clearly not be alarmed by George Osborne’s
proposals. In fact, they would be welcomed for bringing clarity where doubt
and resentment is on the rise. This goes for London’s 23 foreign
billionaires, led in the brute wealth stakes by Lakshmi Mittal, the
Indian-born steel tycoon, and Roman Abramovich. It goes for a fast-growing
cohort of Indian industrialists; for the Arab princes who have long used
Knightsbridge as a home from home; for the Kazakh and Ukrainian oligarchs
following their Russian brethren to Belgravia; for the 300 foreign-born
footballers now in the Premiership (up from just 11 in the First Division in
1992 – their earnings for all games played abroad are tax-exempt); and for
senior foreign-born bankers running City operations that are likely to
remain in London for its language, time zone and communications as well as
its tax regime.
This is the global plutocracy for which London has become an unrivalled
service centre. Its members are not troubled by Tube strikes; they glide
around in chauffeur-driven Bentleys and Range Rovers. They bypass Heathrow’s
queues in favour of Farnborough. Their businesses create thousands of
high-paying jobs (the London-based Greek shipping community is estimated to
provide 4,500 alone). Their drive and flair accounts for much of the City’s
dynamism.
But they represent only a fraction of the non-doms. The second category
consists of the merely wealthy, most of them foreign-born but City-based.
Many are in London on three to five-year investment banking assignments made
more attractive by non-dom status because it lets them park their savings
offshore to appreciate tax-free. The Tory plan could hit them hard: with
£1.2 million or less abroad, they would be better off paying UK tax on their
worldwide income and capital gains – or moving elsewhere.
The third and largest category is even more likely to feel squeezed by a levy.
It consists of thrifty, well-paid professionals who happen to have strong
foreign ties – “an Australian engineer with significant savings back home
who happens to be working in Milton Keynes, for instance,” says Patrick
Stevens of Ernst & Young. How many fit this profile? No one knows.
Hit the streets around Sloane Square and the complexity of non-doms’ lives
begins to emerge. By no means all of them are sanguine about parting with
£25,000 a year.
“Why should I pay that?” asks Nina, 31, who runs cosmetics businesses across
Europe. “I’m domiciled in Slovenia but I can operate in any country.
If they decided to tax me, I would move to Monaco.”
Eric, a 39-year-old French strategy consultant who starts a new job in the
City on Monday, has not heard about the Osborne levy, nor about Labour plans
to crack down on abuse of non-dom status. “That’s crazy,” he says, when I
explain that he would have to choose between the levy and paying 40 per cent
tax on his French savings. “You come to London to make money, not for the
lifestyle. This tax stuff would really weaken the Anglo-Saxon model.”
Annie, a London mother of three, is not a non-dom – but her Lebanese husband
is. “This wouldn’t make us go back to Lebanon,” she reflects. “But it might
make us think hard about voting Tory.”
It was a variation on this sort of threat that caused Margaret Thatcher a rare
loss of nerve in 1988. With her Treasury minister, Norman Lamont, the Iron
Lady was considering taxing non-doms on their worldwide income – a far more
stringent crackdown than a levy. Legend has it that she received a call from
a representative of the Greek shipping community who let her know that they
would up sticks en masse and move to Piraeus if she persisted; and that she
swiftly dropped the plan. “All true,” Lord Lamont of Lerwick told The Times
this week.
It may not be surprising, then, that Gordon Brown’s pledge in 1994 to close
the non-dom loophole should Labour come to power was quietly forgotten after
1997. It has since been revived, thanks partly to embarrassments over
non-dom Labour donors and the IMF’s designation of London as a de facto tax
haven. But even talking tough on non-doms remains risky. Hedge-fund managers
have only to reply that they might move to Zurich, and curbing non-dom
privileges begins to look like a net loss to the Exchequer. “And the Monaco
property market is booming,” a partner at Knight Frank muses. “These people
already feel on safer ground there.”
Who can be a non-dom?
To be eligible for non-dom tax status you must be foreign-born or born to a
father who was foreign-domiciled – which does not have to mean resident – at
the time of your birth.
To apply for non-dom status could not be simpler: just tick the box on your
tax return. Any arguments with HM Customs and Revenue come later.
New applicants may have to demonstrate regular travel to their homeland and an
intention to return there permanently at some point. Most importantly, any
income earned abroad must stay abroad to be tax-free. The system has long
been used for tax avoidance. Methods include setting up “split” contracts -
one for fully-taxed UK income, the other for tax-free “nonUK” earnings.
Money brought into the UK as capital rather than income can also be
tax-free.
“The really big carrot” for non-doms, according to Caroline Garnham, a lawyer
with LG-Legal, is tax-free offshore capital growth. This would include that
of lavish London properties bought by offshore trusts.
For one group of foreigners in London, nondom status means nothing: Americans
are taxed in the US on their worldwide income wherever they reside.
I lived in the UK for over 13 years as a non dom I paid my earned income in the UK I was a UK taxpayer on almost all my income. I also had to pay taxes to the US goverment via amt on all my worldwide income and the two governments could not agree on what the current tax treaty meant. I paid a huge amount of tax over that period some 50% more than if I had stayed in the USA on the same income. I was happy to do this as I was consuming UK services and a UK law. However the additional tax both parties are proposing would have been the final straw. My usa tax return was over 100 pages The authorities miss the point this will not add any additional revenue over the medium term and over the long-term will reduce tax. It is class warfare gone mad
Mark Reilly, Cleveland, USA
Many countries tax on the basis of their worldwide income and capital gains. This includes the U.S., Canada, the U.K., Australia etc. Almost all taxing countries tax individuals who are "resident" by virtue of a day count and/or a closer connections test. The U.S. is unique in being the only major country which taxes based on citizenship. This means that if you were born and have lived your entire life in Brighton, the U.S. considers you a taxpayer, even if you have never set foot in the U.S.
Many taxing countries also have special lower tax regimes or schemes in order to attract wealthy people. The resident non-dom system in Ireland and the U.K., the Swiss forfeit fiscale "lump sum" tax, the Australian retiree tax system, and pre-immigration trust planning in Canada and the U.S. The reason that countries do this is to attract foreign wealth to their country for the other economic benefits (e.g. VAT, property taxes, job creation, etc.)
David S. Lesperance, Toronto, Canada
I am a non dom, investment banker and have created profitable new businesses and increased employment in the city as well as provided investment capital in numerous grass-roots entreprenerial ventures over the past 20 years. My feeling is that this is clearly the start of a down hill slope for further future increases and also, coupled with the increase in business taper relief by 80% to 18%, I most definately feel it is time to re-evaluate current investments in the UK and look abroad for new opportunities.
gdekker, london,
People have to be domiciled somewhere. As the article says Americans pay tax on their worldwide income in America. Presumably Belgians pay tax on their worldwide income in Belgium. Why should foreigners be double tax to live in Britain?
Being an American, I am familar with its tax laws. I am virtually positive that if that Belgian banker moved to the States he will not pay US taxes on his Belgian income.
This article is simple foreigner bashing. This issue is simple foreigner bashing.
Eric, London, UK
Isn’t it marvellous how some people with high incomes think nothing of paying lower rates of tax than ordinary folk.
And there are more than a few who reduce tax contributions by living in a different country from the one where their income is derived.
And then a few who exist on expenses as visitors in the country where their wealth is derived from, but technically live in another. If these people are the real target, then the 25,000 method is ineffective. It hardly touches the high rollers and hits those of modest means.
The American way of taxing world-wide income seems fairest, but like many systems, it might rely on more honesty than some people are likely to display.
Steve Doole, London,
Having been a non-dom in the UK for 12 years, but never rich enough to tax advantage of this "loop-hole", I sought lower taxes in the USA. 9 years later, I am much better off than i ever could have been in the UK. Although I might have considered returning to the UK, at some point with non-dom status; without it, it's out of the question.
Why does the UK think it has a right to tax money made overseas - IT'S NOT YOUR MONEY.
JJ, New York, USA
Perhaps the fairest would be for the UK to stop taxing UK "doms" on their savings. I was briefly unemployed and was delighted though mystified to discover that by spending all my savings on an imported motorbike I became eligible for greatly enhanced handouts.
Alan, London,
Non-Doms pay UK tax on UK sourced income. Those who have income arising outside of the UK, which in not UK sourced income, are already taxed in the country where the income arises. Some readers may not be aware that the UK has an extensive network of double tax treaty, and the purpose of such DTT is to eliminate the double taxation of income and gains arising in one territory and paid to the residents of another territory. Obviously, if the non-doms are taxed on their non-UK sourced income in UK as well, then such income having been taxed in another territory will have attached to it a credit for the tax paid in that other territory. What is not certain is whether the taxes the politicians envisage to collect is high enough to fund the IHT and SD concessions the Tory party is seeking to provide.
Go figure…
Peter, London, Uk
This proposal will cost Britain greatly. One of the advantages of non-dom status is that you can come here to work for a few years without having to totally unwind your offshore life - so my wife and I could come here for a few years, earn a living, pay tax (loads more than £25,000 per anum) and leave again without having to unwind our Australian pensions, savings accounts, bank accounts and share holdings.
Before we came to live here, we looked at Los Angeles, New York and Paris - yes, that's right people - you are in competition. Non-dom status made it very easy to move here because we could preserve our foreign ties for when we eventually return. Without non-dom status, places like New York with better transport, better shopping, better eating, more glamour and warmer summer weather become very attractive.
So prepare for the non-doms to go somewhere nicer and not be replaced, and start getting used to a Britain with all the economic and political clout of Portugal.
Damian, London, UK
anyone who thinks this has a major effect on property prices is a fool, as they've obviously failed to consider the far larger effects of people living longer, increasing population and the huge rise in single person households. apart from a few wealthy areas of london, the effect is going to be pretty negligible.
Hugh, London,
With a global economy we will have to have a global government that will tax equitably and maintain a reasonable order. Right now we have a growing problem without it and eventually people will be so angry that changes are made. Smart people will begin talking about how it should look now.
viv luze, st paul, usa
Well guys, it's rather simple. If you want me to come to Blighty and bolster the local economy with spend, spend, spend then don't threaten me with tax.
mark, dubai, uae
Honestly you people who think Non Doms get away with it are on cloud nine or financially unsophisticated hence you never made a billion pounds ! basically these people Pay alot of taxes in other ways indirectly , for example Abromovich thru a football club not only that these people provide 100's of jobs for many people as well as already paying Thousands in Indirect tax anyway, and lets face it , THEY CHOOSE ENGLAND ! they could go elsewhere if they wish ... why are we always looking at some one else who is more fortunate with envy ! let it go after all most the money they earned was not made in UK but elsewhere , the difference is they Choose to spend it here .... the same people who are benefit spongers are the same people who winge !
lee h, leeds, uk
Want to make your 'rich' homeless and tempest-tosed ? We'll take them gladly as we have in the past. The lamp is lit beside our golden door. (Penny wise/pound foolish.)
Bob Hall, New York, United States
About time these "super rich" started getting stung like the rest of us poor suckers!
How come the honest earners here who PAYE are constantly told not to ask for too much money in case inflation goes up, then we watch our mortgage rates go up because inflation has risen through no fault of our own (oil,gas, etc..).
Then we have to sit and watch these obscene money bloaters rubbing our faces in the fact that they are making huge sums off our backs and not paying jack into our society.
I have no problem with people earning large sums of money, so long as they pay their fair share.
Pete, St Albans, England
You don't have to be rich to be a non dom
I am British born and have lived in the US for 20 years. A couple of years ago I was sent back to the UK by my employer on a three year assignment as a US expatriate. Imagine my suprise when I fwas told that I could claim non dom and thereby avoid pretty much all UK income tax. My parents are both UK born so technically I did not qualify and this was pointed out, after the event by the revenue. I was succesful in arguing that I had a legitimate claim to non dom as a) I am a US citizen b) I had retained my primary residence in the US while living in the UK and c) if you want your money back , come and have a go if you think you're hard enough. Its a really sweet deal, but only foreigners qualify.
Gianniblue, New York, USA
I think it is about time these uber rich non-dom leeches, some of whom don't pay council tax either, were kicked out of Britain. We don't all rise and fall together; they've risen over the last ten years and we've all fallen. Let them go to Monaco, they don't pay into anything anyway.
Why should ordinary people in this country lose nearly a quarter of their income every month to pay for services the uber rich use but refuse to pay for? Maybe it is about time the police stopped turning up at robberies and carjackings where the victims are non-doms. After all, they haven't paid for it, have they?
Alex, Leeds, Uk
I am astounded that anyone whill comment in favor of income tax in any way! Remember Karl Marx? It's one of his Communist Manifesto mission statements!!!We've both in America and in UK let the sneaky baddies sucker us into too, too many of his ideas--like compulsory, tax supported public schools and income tax. The wealthy are a help as long as they aren't the criminal type--don't chase them away. We all rise and fall together.
Terri Dance, Salisbury, Missouri, USA
I just rememebered when our misguided former President Jimmy Carterand his Democrat controlled Congress did various "soak the rich" tactics in the late 1970's--one was to put a huge tax on yachts. The results were that the tradesmen who worked to make the yachts were thrown of work, the communities where they lived were economically blighted and the "rich" who wanted a nice boat bought it elsewhere and so virtually no tax revenue could possibly have been generated but I bet the Marx loving crazies were delighted to have more chances to convince some of those financially devestated working class people to become welfare recipients and try to enslave them/gain their votes through that transaction in Congress.
That's just what will happen more in UK if you chase away the investors--your welfare state burden will still be there for you to support yourself--good luck!
Terri Dance, Salisbury, Missouri, USA
The tax privileges enjoyed by the non-doms are outrageous, yet a mystery to most British people. While the rest of us sweat under increasing Labour taxes to fund their illegal wars and domestic waste, a class of super-rich lives it up in London paying effectively nothing, pushing up housing prices for the rest of us to boot. Lamont's comments reveal how deeply this institutionalised corruption runs in our system, as both Tory and Labour governments have refused to touch the non-dom loophole - both parties get funding from the non-doms to keep the status quo. The changes proposed by the Tories this week are exactly the wrong way to deal with the problem - targeting the non-dom minnows while having no effect on Abramovich or Mittal and the like, for whom £25k is loose change. Tax them all on a percentage of income, and give the British lower (ideally flat) rates! No taxation without representation!
Paul Amery, London,
I think it is perfectly fair for non-doms to not pay tax on their offshore assets provided it is not being used as a way to evade tax on income earned in the UK. Foreigners working in the UK do not have an equal footing to UK nationals in terms of benefits that they are entitled to, they cease to have access to the NHS if they leave the country even though they have paid towards it like UK nationals who would continue to have acess to it, they also don't get any inflation adjustment to state pensions if they are not living in the UK, unlike UK national would if they moved abroad. So if they are treated as different when they leave the UK, why should they pay tax on assets which they accumulated and are going to spend outside the UK?
Nic, London,
Does anyone - except the Greedy Classes of the SE - think the proposal is serious. If it was as much of a "slam dunk" as the Tories claim it is then NuLabour would have done it a long time ago.
Assuming the Tories aren't more stupid than Labour, the only conclusion is that this is merely an election gimmick designed PURELY to make Gordon Brown look weak either by not calling an election or by losing seats to the Tories.
Dave knows he can't win the next election so he can promise Bread & Circuses to everybody as he knows it's totally meaningless.
Alan, edinburgh,
Mr Osbourne obviously has no clue as to what he's getting into!
Having lived in central London for many years, and seen the astonishing boom over the last decade, I can safely say that the devastating effect that a "crack-down" on non-doms would bring to the economy on whole would be truly disastrous..
The non-doms based in london not only give back an incredible amount of wealth to the city, but also give London the international flair that many world cities are achingly envious of, and strive to replicate through similar non-dom laws.
But rhe worst by far is that the property mkt would take a considerable beating. I'm not sure that the english (even though they complan that London is so expensive) would appreciate say a 5-10% drop in property prices. Especially since property is easily the main asset of the average british household..
Chris, London,
Why should I pay tax on my savings if my income has already been taxed by the UK?
Absolute trivel. Anyone for polo?
Guy de Viniers, London, uk
It is depressing to see the Tories proposing to tinker with the tax system for political purposes - who knows if they will raise the billions from this non dom tax, but what is pretty certain is that it will have unintended consequences and will interfere with the UK/London's status as the free market capital of the world. Did the Tories consult people who really understand tax such as partners of big 4 accounting firms? If this is in their manifesto I will vote Labour, not because I like the rich, but because I dont trust that the Tories actually know what they are doing.
John Shale, Bristol, UK
A foreigner based in London, I feel it is my duty to pay tax on all income generated whilst living in the UK. After all I am using the infrastructure... The ability to earn tax-free bonuses is indeed attractive for foreign finance professionals, but they are unlikely to spend their accumulated wealth in the UK at any rate...
Thomas, London,
A sensible article but the underlying premise, that one is getting away with something if 'unearned income' and capital gains are untaxed, is open to question.
A fair tax system would be one that taxed only one's local earnings, and not investment income or gains or estates - the Hong Kong tax system for example.
After all, one will have paid tax on everything else at one point.
It is the resident British who should be asking why they must put up with all the tax they pay.
Do you really need all those diversity czars and health and safety regulations?
Andrew, Hong Kong,
Good riddance. Perhaps then property prices will fall and the average person can afford to buy a house.
Farrukh, Woking, UK
The damage has already been done in view of the incredibly unfair and biased discussions surrounding the issue. Many of us expats are already preparing to leave as all this hostile public debate means that some sort of punitive treatment against non-doms is only a matter of time. Most expats are not "super-rich" as claimed by the Tories or the British press and struggling professionals with mortgages, needs of their families, etc. and already paying very large amounts of taxes in the UK through PAYE, etc. Most of us are simply unable to afford to pay to the UK Govt another ï¿¡25,000/ ï¿¡12,500 per year to finance other people's lifestyles. And if we had that kind of money, we would prefer to give it to charities. We do not like being forced to abandon our domiciles either and would rather relocate elsewhere.
Frank, London,
Kick em out we don't need them
chris, SW6,
Canadians are also required to report their world wide income and are taxed on it by the Canadian government if no local taxes were paid (in the country the income was generated).
Tom O'Farrell, Sarnia, Ontario. Canada