Treasury urged to delay tax grab on 'non-doms'

Business leaders called yesterday for the Treasury to delay a tax grab on non-domiciled foreigners until next year after they warned that late changes to the complex legislation could cause confusion and spark an exodus of wealthy City workers.

Rules due to take effect on April 5 should be delayed until next year to allow both the tax advice industry and Revenue & Customs to cope with the changes.

The government agreed earlier this week to scrap plans to place a retrospective tax on non-doms as part of a "clarification" exercise and head off criticism that it was attempting to rush through major tax reforms without proper consultation.

The acting head of Revenue & Customs, Dave Hartnett, issued a statement spelling out how the tax authority would implement the reforms. The centrepiece of the scheme is a £30,000 charge on individuals who register as non-doms who have lived in the country for more than seven years.

Ministers said they would also need to examine the worldwide tax affairs of those people who register and hinted that a retrospective tax could be imposed on previous capital gains. But Hartnett said foreigners working in Britain could avoid an examination of their tax affairs if they paid tax on all money brought into the country. It was also a "drafting mistake" that the reforms included a retrospective tax grab.

Alistair Darling, the chancellor, who has come under intense pressure in recent weeks from wealthy.....continued below

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business people, including several generous Labour donors, to rein back its tax grab, said the statement clarified how the new rules would apply. Initially business groups welcomed the move but yesterday they argued there were several areas where the government needed to provide extra clarification. The Institute of Directors, which represents small and medium-sized businesses, said a year's delay was needed. Representatives of the tax advice industry also called for implementation of the rules to be delayed.

Mike Warburton, a tax adviser at accountants Grant Thornton, said there was more confusion over tax rules changes, including reforms to the capital gains tax system, than he had known in 35 years in the industry. He said clients would find it impossible to see how the legislation would affect them and would consider leaving the UK.

The Society of Trust and Estate Practitioners, which represents firms advising some of the richest non-doms, said discussions with Revenue & Customs in recent days had clarified many areas of the new tax legislation but there still uncertainty over how it would apply in practice.

A spokesman said: "We think a delay is the sensible option. It is not just about our clients getting to grips with the changes, there is also a danger Revenue & Customs will rush the legislation and create loopholes that it will later need to close."

Government critics, who said the tax rules did not go far enough, likened the flat £30,000 tax to the measures used by offshore tax havens to attract the wealthy who roam in search of low-tax jurisdictions to base their operations.

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