Dating from the age of the empire, the non-domicile status was designed during the Napoleonic wars in the hope to get cash from workers in America. The law lets foreigners (and their British born children) claim a non-domiciled status and therefore put aside some of their wealth and income from Britain. Thus, 10% of the population living in Britain (bankers, but also east European workers) are entitled to use it , whereas the rest of the population are liable for tax on their income and gain worldwide.

We published an article back in October, explaining that the government, under the pressure of the opposition, was planning to tax a lump amount of £30,000 for anybody wishing to keep the protective non-domiciled status. Now, as explained in The Economist, the Chancellor of the Exchequer is back-tracking on the issue to tax foreigners. The fact is, according to the aticle, that 115,000 people who claimed non-dom status in 2006 still paid £4 billion in income tax on their earning in Britain (in 2006-7 tax year, HMRC collected £125 billion in income tax), and contributed £12 billion in GDP. Additionnaly they could pay up to £ 3 billion in VAT and £300m in property transaction.

In comparison the new rules would have raised £650m a year, with maybe only 3,000 people leaving Britain. However the Labour government added new rules that would have force non-doms not only to disclose their interest in offshore trusts, but also, potentially, to pay tax on earnings made and kept abroad, even retrospectively. It prompted immediately fears and concerned, and an army of consultant manage successfully to lobby the government... until the next attempt, maybe?

The UK pre-budget was released in Parliament yesterday by the Chancellor of the Exchequer, Alistair Darling. Here is part of the speech (I put in bold the 2 important assertions):

Mr Deputy Speaker, we welcome the contribution made by people born outside the UK who choose to come and work here. They are an important and central contributor to our economy’s growth and prosperity.

They pay taxes on their earnings here and also pay tax on money they bring into the country from abroad.

But for those non-domiciled individuals or families who have chosen to make Britain their home, I believe that it is right and fair that they should, after 7 years, pay a reasonable charge to maintain the right to be taxed differently from other UK residents.

Beyond that, as I have said before, we will not seek to charge UK tax on offshore income or capital gains that is not brought into the UK.

This new charge will be implemented from April. There will be no further changes to this regime for the rest of this Parliament or the next.

Last October I said that I would consider a scheme to which claimed to raise an additional £2.8 billion. On closer examination it was clear that the sums that did not add up. Not for the first time given the source. And I have rejected it.

We will continue to be vigilant against tax avoidance and we are publishing today further measures to ensure fairness for all taxpayers.

Therefore a £30,000 levy will be put on those who seek to keep on their non-dom status after 7 years of residence in the UK.