13 February 2008

Telegraph: Darling makes non-dom concessions

Business leaders have welcomed the Chancellor's U-turn on new rules for non-domiciles - but warned that the Government must do more to rebuild damaged relations with foreign residents.

In a letter sent to tax advisers yesterday, Alistair Darling said that the new tax rules for non-doms - foreign workers who live in the UK - would no longer require them to make "additional disclosures about their income and gains arising abroad".

He also stressed that none of the tax measures being introduced will apply retrospectively.

The new rules on disclosure were part of reforms that will see non-doms pay a £30,000-a-year charge from April on top of tax on any UK income. The move prompted protest from the City of London, private equity and even Labour donors and MPs.

John Cridland, CBI deputy director-general, said: "This clarification is a victory for common sense. That it was required at all demonstrates why business places so much value on proper consultation on delicate matters."

He also accused the Government of "cobbling together" the original proposals, calling the clauses on trusts and retrospective taxation "particularly punitive".

He warned that any taxes on non-doms would not only affect the "super-rich" but also thousands of accountants, lawyers and bankers who contribute £23bn to the UK economy and £4bn to the Treasury each year. The new tax is expected to generate £800m extra revenue for UK coffers.

The Treasury said yesterday that it was continuing discussions with the US government to allow American non-doms to make their £30,000 contribution creditable to their US tax bill. However, sources said that the Treasury was pessimistic about its ability to make this happen.

Ian Harrison, tax director at the London Investment Banking Assoc­iation, said: "These changes appear helpful on the margins but don't address the main issues and therefore we remain very worried about the adverse effects on the investment banking sector in the UK."

According to the British Private Equity and Venture Capital Association, 90pc of senior staff in some global private equity firms are non-doms and about a third of individuals say they or their family would be hit by the measures against offshore trusts.

Simon Walker, BVCA chief executive, said: "We are pleased the Government has removed some of the retrospective and onerous disclosure requirements. But the overall move still constitutes a chipping away of London's reputation as a welcoming base for global financial services."

Mike Warburton, partner at accountants Grant Thornton, said that while the U-turn on disclosure was a "first step", it did not address the problem of draconian new rules on offshore trusts, which would render them counter-productive. "Even Gordon Brown realised the non-dom rules were too important to mess with," he said.

Shadow Chancellor George Osborne said: "The question for our dithering Prime Minister is how long can he keep someone at the Treasury who is clearly not up to the job."

By Sophie Brodie

© Daily Telegraph