Miliband: Labour will abolish non-dom status

Ed Miliband will announce on Wednesday that Labour would scrap the non-domicile rule, which allows some of the richest people living in this country to avoid paying tax on a large proportion of their income.

As it stands the non-dom rule allows people who were born and are living in the UK to avoid paying certain taxes. This rule was created more than 200 years ago and allows people whose fathers were born outside of the UK to avoid paying tax on income and capital gains they make outside of the UK. It can also apply to people who were born abroad but who have chosen to make the UK their home.

A person who is a non-dom and lives in the UK for less than seven years can make use of the rules that apply to them without having to pay any fees, after 7 years they then have to pay £30,000 for their non-dom status, this increases to £90,000 after seventeen years. For many non-doms this is worth paying because of the amount of tax they are able to avoid paying.

These rules also mean non-doms can use offshore trusts to buy high-price property in the UK and avoid paying inheritance tax here.

This is a system unique to the UK – other countries require people living there permanently to pay tax on their worldwide income and gains.

Miliband will explain how Labour will abolish the non-dom rule by April 2016 and ensure everyone who makes the UK their permanent home pays full UK tax on all their income and gains. The party say this will bring in hundreds of millions of pounds of additional revenue.

However, as a safeguard, Labour would also make sure they temporary residents of the UK, who come to the country to study or work, would only pay tax on income and gains made in the UK.

Milband will make this speech at the University of Warwick. In it he’ll explain that this is part of Labour’s vision for a fairer society and argue against those who say abolishing non-dom status can’t be done – here’s what he’s expected to say:

“There are people who live here in Britain like you and me, work here in Britain like you and me, are permanently settled here in Britain, like you and me, but aren’t required to pay taxes like you and me because they take advantage of what has become an increasingly arcane 200-year-old  loophole. There are now 116,000 non-doms, costing hundreds of millions of pounds to our country, it can no longer be justified, and it makes Britain an offshore tax haven for a few.”

“What is the proof you need to show you are ‘not domiciled’ here? What are the kinds of test that are applied? It is fair to say they are not very rigorous. Whether you own property abroad, whether you own a burial plot abroad, whether you subscribe to an overseas newspaper. You can qualify even if you’ve lived here all your life on the grounds that your father was born abroad. So old-fashioned are these rules they don’t think it’s even relevant where your mother was born.  I want to be clear: I don’t blame people for taking advantage of non-dom status. I blame governments for fostering a system that can be taken advantaged of.

“It works against every business and working person in this country who has to pay more as a result, everybody who relies on public services like the NHS, everybody who believes in Britain and a fair and modern country.  The United States doesn’t do it. No other major country in the developed world does it. No one would propose doing it now if didn’t already exist. One rule for some and another for others? It is unjust, it does not work, it holds Britain back and we will stop it.”

 “The next Labour government will abolish the non-dom rule. And we will replace it with a clear principle: anyone permanently resident in the UK will pay tax in the same way. The rules we will introduce are modelled on what other countries already do. Real temporary residents, here for a limited period, will only have to pay tax on what they earn here because they will be paying their taxes in their place of permanent residence.”

“Now, some people will say that if we change the rules people will leave the country, just like they used to say that we can’t act on bank regulation because the banks will leave the country. They say we can’t act on energy companies, because the Big Six won’t stand it. Some of them are the same people who said back in 1997, that we shouldn’t introduce a minimum wage because it would cost millions of jobs or a windfall tax on privatised utilities. Some threatened to leave the country then too. And guess what? They’re still here.”

“I just don’t believe the way we compete in the world is as an offshore tax haven. We don’t compete in the world by offering tax advantages to a few that we don’t give to all our citizens and businesses. It is not fair on all those millions of working people and businesses who pay their share and play by the rules. And it’s not fair on all the people who rely on our public services either. And with a deficit to pay down, the country can’t afford it.”

“There is a moral reason for it too. We all use the same roads, we are all protected by our police and armed forces, even those who go private sometimes rely on the NHS. It is the common good. We use these same services therefore we all owe obligations to help fund them according to our ability to do so. Just as we rightly demand responsibility for those who can work that they should do so, so responsibility should go right to the top. It is what makes our country strong. It is what allows a country to succeed.”