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UK MPs Urge Treasury To Publish Non-Domicile Tax Status Review

by Jason Gorringe,, London

01 August 2007

UK lawmakers have urged the Treasury report the findings of a long-running review into the non-domicile tax rules amid reports of a dramatic rise in the number of wealthy UK residents claiming domicile offshore and paying little in UK taxes.

The call from MPs on the Treasury Select Committee was included in the recommendations of the report on the private equity industry, published on Monday. In it, the Committee asked the Treasury to inform it of progress on the 2003 review of the residence and domicile rules as they affect the taxation of individuals, setting out what evidence has been assembled, whether any external advice has been commissioned and the rationale behind any proposed changes.

"Given the apparently rising number of the non-domiciled, and a perception that monitoring of the status of non-domiciles is weak, it is essential that the Treasury and HM Revenue and Customs are able to demonstrate that they have a rigorous approach towards claims of non-domicile status," the report stated.

The issue of the non-domicile tax rules were included in the wide-ranging report on the conduct of the private equity industry in the UK. The Observer newspaper has claimed that only 40 of the top 200 private equity partners are tax domiciled in the UK, but witnesses from private equity firms giving evidence before the Committee have regarded this figure as unrealistically low. However, Jon Moulton of buy-out firm Alchemy said that he thought there were abuses by individuals of the domicile rules "which allow in the case of the UK people who have lived here 50 years in some cases still to claim they are not liable to UK capital gains tax."

In calling for an update of the non-dom review, the Committee recognised that the issue was not one exclusive to the private equity industry. Last month, Treasury Minister Jane Kennedy told the House of Commons that the 110,000 individuals claiming non-dom status in the 2004/5 tax year earned a collective GBP9.8 billion and paid GBP 3 billion in tax. She was however, unable to tell the Commons how much tax might be being lost to the Treasury as a result of the scheme which excuses claimants from UK income tax on foreign earnings. The Observer has claimed that the number of individuals claiming non-domicile status hit 200,000 during the 2006/7 tax year.

While the Treasury has been reviewing non-domicile tax status since April 2003, it has seemingly been sitting on its hands in the meantime and has given little indication of when the results will be published. Despite the recent furore over the apparent inequality in tax treatment for wealthy investors such as private equity partners and low-and middle-income earners, the government continues to hint at its reluctance to alter the status quo because this could harm the status of London as Europe's pre-eminent financial centre.

"The government is mindful that any changes to the current system would need to balance carefully the rules of ensuring fairness and of promoting the UK's international competitiveness," Kennedy told the Commons, according to Bloomberg.

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