Gordon Brown To Act On Domicile Tax Loophole

by Robert Lee, Tax-News.com, London

12 March 2002

It was revealed at the weekend that UK Chancellor Gordon Brown is considering closing a tax loophole which benefits nine of the Labour Party's largest donors.

The use of 'non-domiciled status' to avoid paying UK taxes on overseas income was highlighted by the recent controversy over steel magnate and Labour donor Lakshmi Mittal, which caused the Government some embarrassment, as it had criticised the Conservatives for failing to close the loophole when in opposition.

An Inland Revenue report commissioned by the Chancellor last year revealed that over 60,000 long-term UK residents claim 'non-domiciled' status, at an estimated loss to the Treasury of between £4-5 billion per year.

Experts suggest that the Chancellor is likely to consider the introduction of a 'two tier' approach to the problem, with those staying in the United Kingdom for short periods - perhaps under four years - to be permitted to claim tax residence elsewhere, and those resident in the country for longer to be subject to UK tax on their overseas income.

However, the Government will need to tread a fine line if it is to avoid upsetting major Labour donors such as Mr Mittal, financier Christopher Ondaatje, Psion chairman David Potter, and food tycoon Gulam Noon, and there are doubts as to whether the additional revenue which would be generated by such changes would be significant enough to warrant action.

Speaking to the Financial Times, John Battersby, the Head of Tax Policy at KPMG observed that: 'This could well turn out to be an illusory crock of gold. If the rules are changed, my feeling is that many of these internationally mobile individuals will leave the UK.'

He added that: 'They could also simply avoid becoming residents for tax purposes by spending no more than 90 days here a year. I suspect that the benefit to the Treasury would be nothing like £4 billion.'

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