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STEP Comments On Tory Tax Cut Plans

by Jason Gorringe,, London

02 October 2007

The Society of Trust and Estate Planners (STEP) has commented on plans recently announced by the UK Conservative party to tax resident non-domiciles and slash inheritance tax and stamp duty.

Tax cuts would be paid for by a £25,000 annual levy on resident non-domiciles - those individuals who live in this country but who do not pay tax on non-UK income unless they bring it into the UK.

According to a statement released by STEP, the proposed levy would enable the government to introduce a tax regime for non-domiciles without making the UK an unattractive place for them to continue residing.

John Riches, Deputy Chair of STEP observed that: "The levy is a relatively simple way to tax non-domiciles without getting into the complexities of calculating their non-UK income. If implemented these proposals would still mean the UK had an attractive regime for those non-domiciled UK residents. But the key question is how the Government will react. If the Government does make changes they will likely recognise the contribution of the wealthy to the UK and the fact that many of these individuals are highly mobile."

Earlier this week, Shadow Chancellor, George Osborne outlined his plans for the levy in a speech at the Conservative party conference in Blackpool, announcing that:

"There are currently a number of people living in Britain who register for non-domiciled tax status offshore. It is a good thing for Britain that they live here and bring their talent and their investment to our economy. I make this promise: I am not going to tax all that income as Gordon Brown has persistently threatened to do. But in return for that promise and the certainty it brings, we will charge a flat annual levy of around GBP25,000 for those who register for non-domicile status."

Commenting further on Osborne's speech, Riches went on to state that if these Conservative proposals were to be made law, then clients would likely react in two ways: "Those with a non-UK income of £62,500 or less may well consider bringing their money into the UK and pay 40% tax. Those with more than that amount would likely opt to pay the levy. An important issue would be to ensure the proposals did not lead to double tax, especially for US citizens who are taxed on a worldwide basis regardless of residence."

Director of Policy at STEP, Keith Johnston also commented on the proposals, stating that: "In order to be confident that this would raise enough tax the Conservatives key assumption appears to be that 150,000 non-domiciles have non-UK investment income of £1.5m or more. It is very difficult to make any objective assessment of that assumption since non-UK investments are not declared."

With reference to the proposals to cut inheritance tax rather than abolish it altogether, Riches concluded: "The Conservatives have abandoned attempts to abolish IHT, but instead will reform it by increasing the thresholds and other exemptions."

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