27 February 2008

Economic Fears Over Non-Dom Taxation

Recent figures from the Organisation for Economic Cooperation and Development suggest that people are leaving Britain faster than at any time since the fifties.

According to the O.E.C.D. there are currently 3.24 million Britons living overseas and with more people leaving the U.K. than in any other country bar Mexico, the figure is set to rise.

The Government's decision to tax the foreign earnings of non-domicile U.K. residents will do little to stem the flow of professionals queuing up to leave for pastures new.

In an attempt to limit the numbers leaving the city the Treasury has given
non-dom's an option to avoid the tax providing they pay a levy. While the levy, currently pitched at £30,000, may discourage those on the highest incomes from leaving the U.K. that figure could easily be increased in future budgets.

British residents domiciled in the UK and already paying tax on their foreign income could argue that the non-dom’s should not be treated specially and cough up the cash. After all, ordinary residents and non-doms alike use the public services, so why shouldn’t the nom-doms be taxed on their foreign income?

Critics of the Government’s tax policy, however, are concerned that the legislation could herald the return of an old fashioned "brain drain" that could damage London’s reputation as the finest financial services centre in the world.

The city of London’s expertise in banking, insurance, accountancy and the law is unquestionable. Historically these invisibles consistently generate significant trade surpluses which offset deficits generated by visible trade.

In December 2007 the U.K.’s surplus from invisibles was £2.9bn. With the economy running a monthly trade deficit of around £4.7bn per month Britain can ill afford to lose the contribution the financial services industry adds to the U.K. economy.

The fear remains that as London’s non-dom entrepreneurs are faced with higher tax demands they will flee the U.K. taking their expertise, and the invisible earnings they generate with them.

This Article can also be read on the Online Financial Magazine About your money

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