Non-doms, boo hiss

With the latest spate of media attention on the unfairness of the tax system and the same old, tired, ill informed commentaries being unearthed and published anew, perhaps a recap on domicile is merited.

The law of domicile has existed since the Roman empire. Domicile determines the country of legal belonging of a person, is of general application in private international law (most particularly in succession) and is found throughout the common law countries of the world.

In the context of taxation, the relevance of an individual's domicile status stems from WW1, when FA 1914 introduced a change to the law and, for the first time, held that the overseas income of UK residents was to be liable to UK tax. An exception was made for non-doms, who were to continue being taxed on their UK income but not on their non remitted overseas income.

Whilst this was probably spun as not being cricket for us proper Brits to expect Johnny Foreigner to pay for our war, one wonders whether the reality was less honourable; and represented nothing more than a pragmatic acknowledgment that it would be much harder still to fund the war if wealthy UK resident foreigners chose to hop on the first ship leaving port; taking their business, their assets and their spending power with them.

The best part of a century later, our economy remains dependent on the investment of people and trade from overseas. There can be little doubt, and certainly not to those of us who are involved first hand in advising potential inward investors, that the tax code is an important factor in attracting investors; after all, in considering London as a possible place in which to do business or to live, a wealthy foreigner is hardly going to be bowled over by the joys of our world class transport infrastructure.

Such non doms are obliged to pay UK tax on their UK derived income (and gains) and to pay indirect taxes, just like us Brits. In return for not paying UK tax on income and gains kept abroad by these foreigners, UK Plc gets valuable investment, trade, job creation and consumer spending. When one remembers that it is a remarkably difficult, if not futile, task for any government to collect taxes overseas anyway, all the UK is doing is admitting that it will not even bother trying and, in return, it attracts the investment of foreign money. All told, it’s a jolly good wheeze; something for nothing.

Successsive governments have been only too aware of the economic benefits of leaving the tax code unaltered and there are manifold consultation papers quietly collecting dust as testamant to this sitting on hands. Further, any government who voluntarily changes the law to remove the non-dom tax advantages will, at best, get no thanks from the moaning minnies who will move on seamlessly to another cause against which they can direct their envy and egalitarian drivel and, at worst, will bring the UK economy to its knees in a stunning act of hubris.

It might be worth noting that the European Commission is working on a white paper, Succession and Wills (Brussels IV). The broad theme of the consultation is the introduction of EU wide legislation, optimistically projected to be in force by 2011, which seeks to unify private international law across the EU states. It comes as no surprise that the UK government is already indicating it will opt out.