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Labour’s plans for non-doms could prove costly for the UK

The Labour Party has said that in its first Budget it would abolish non-domiciled status. But non-doms do pay tax, and they do have a choice where they pay it. Scare them off, and they’ll pay it elsewhere, says Merryn Somerset Webb.

The 2019 Labour Party Conference - Day 3

2019 Getty Images

There is a lot of mildly disturbing silliness coming out of the Labour party at the moment. But, with the genuinely nuts (the expropriation of private school assets by the state, for example) grabbing the main headlines, one smaller policy suggestion isn't getting quite the attention it should.

Labour has said that in its first Budget it would abolish non-domiciled status as part of a "comprehensive plan to increase tax transparency and clamp down on tax avoidance and evasion". UK residents, said Labour's John McDonnell, "should pay their tax to support our public services and infrastructure."

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He has a point, of course someone has to pay the taxes to keep the UK's welfare state on the go. But the thing is that the UK is not exactly the only country that offers favourable tax deals for newish immigrants. The truth is that the very-well-off have choices. Lots and lots of choices.

Italy is very keen on well off non-doms, for example. Move there, and, while you have to pay ordinary income tax on income actually generated in Italy, the rest can be dealt with by one single lump sum payment of €100,000 a year regardless of how much you as a non-dom might actually have made. No income taxes, wealth taxes or local taxes due. What's not to like? The best bit is that you can hang on to this generous tax avoidance scheme for 15 years and (unlike in the UK regime) remit both assets and income to Italy anytime without incurring any new tax liabilities. Nice.

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Portugal is at it too: there's a reason rich people like living in Lisbon. Under the non habitual residency rule (NHR) you effectively get a tax holiday for the first ten years you live there paying a flat 20% income tax (the usual top rate is 48%) if you work in a sector classified as "high value added". Income from outside Portugal fares even better it is totally tax free for the first ten years you live in Portugal.

On to famously high-tax France. Anyone who relocates there to work and, in doing so, makes France their primary residence can end up partially exempt from French income tax for eight years. They are also exempt from the French wealth tax on all assets held outside France for the first five years for their residence.

Finally, I would point you to Denmark. You might think of it as a Scandi people's paradise a semi-socialist country always wise to rich people and their nasty tax avoiding tendencies. Not so. Move there and you can cut a deal too. How does a six-year flat rate of income tax at 32.84% sound? Its not as good as Portugal (nor as easily accessible) but meet the criteria and it will still leave you an awful lot better off than living in Corbyn's Britain.

The point here is that it's going to be pretty easy for our non-doms to pack their bags and go (in the main, their bags are already packed). But given the attractions of, say, working from home in the Algarve or perhaps a villa just outside Rome, it won't take much in the way of income and wealth tax rises in the UK for our rich doms to see the attractions of being a non-dom somewhere else.

I wonder if the Labour Party has factored the loss of every non-dom and pretty much every additional-rate taxpayer in the UK to somewhere more sympathetic to their needs into their budget calculations?

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