Abramovich and co face taxing times as Treasury gets tough
WEALTHY foreigners, including Chelsea Football Club owner Roman Abramovich, could soon be forced to hand over millions more of their income under moves to close a controversial tax loophole.
As many as 100,000 registered "non-domiciled" residents in the UK, such as Abramovich, Harrods owner Mohamed Al-Fayed, and the UK's wealthiest man Lakshmi Mittal, all currently avoid normal tax rates by declaring that their real "domicile" is outside the UK.
In Scotland, the laws are exploited mainly by foreign workers in the finance and oil industries.
As a result, even if they spend all their time living in the UK, they do not have to pay tax on earnings and assets which stay out of the country. Accountants estimate that, as a result, as much as 1bn is being lost to the Exchequer.
Prime Minister Gordon Brown has come under pressure to close the loophole, but has so far declined to take any action, warning that such a move could scare the 'non-doms' away, depriving the country of their wealth.
But one of his Cabinet colleagues has now confirmed that ministers will look into the issue.
Speaking at a fringe meeting at last week's Labour conference, Minister for London and the Olympics Tessa Jowell said: "Over the past 10 years, as part of this process of global change, we have seen the arrival of the super-rich. And rich to a degree that would have been unimaginable 10 years ago."
She added: "And I think that in time we will come back to consider the position of the people who are non-domiciled but who are resident in the UK and pay no tax."
Treasury sources say they are now considering "chipping away" at the non-dom loophole, amid backbench complaints that the wealthy are being given special treatment. The tax avoidance measures of the super-rich were highlighted by a survey earlier this summer which found that of the 400 UK-based individuals who earn more than 10m a year, only 65 paid income tax.
The non-domicile rule has now become a hugely popular method of tax avoidance, open to anyone so long as they can cite some other country as their real domicile. In the past, the German-born Tiny Rowland, Czech-born Robert Maxwell and Cypriot Asil Nadir successfully applied for the break and were able to avoid UK tax on any earnings which were not "remitted" to the UK.
One tax adviser, Lee Hadnum, author of Non Resident And Offshore Tax Planning, recently described the loophole as "a fantastic tax break because it means that your investments can grow offshore tax-free for many years and potentially indefinitely".
When still Chancellor, Brown ordered a report on the matter in 2002, arguing at the time that those foreigners with a "long-term connection" to the UK "owe a special obligation to support the social structures of the state".
However, the report has never been published and no moves have been made since to reform the system. Ministers say they fear that ending the tax breaks could end up forcing such billionaires to leave the country. While closing the tax break could net 1bn, it is thought that the non-doms still indirectly contribute huge sums in taxes that do reach the Exchequer.
Jowell's comments come after a Treasury minister, Angela Eagle, suggested during the conference that the government might consider hitting top earners with higher taxes.
Chancellor Alistair Darling has insisted he will not countenance such a move - but both the comments by Jowell and Eagle were welcomed by the Lib Dems last night, who want heavier taxes for the very wealthy.
Vince Cable, deputy leader of the Liberal Democrats, said: "These remarks together with Angela Eagle's comments earlier in the week suggest that the Government is taking on board our criticisms of non-domiciled tax rates which benefit the super-rich."
He added: "The first step for the Government should be to publish the review of non-domiciled tax undertaken in 2003, but whose findings have been suppressed and even now are not being released under the Freedom of Information Act."
However, tax experts warned the move could be counter-productive. George McCrachan, tax partner at Grant Thornton, said: "It would be a brave thing of any government to do. A lot of people working in the City of London, and to a lesser extent in Edinburgh, will be non-domiciled and will not be paying tax on all their income. If you change the law, will they take off somewhere else?"
At the fringe meeting, Jowell said she did not believe in the Lib Dem plans to raise tax for high earners more generally.
She said: "I don't think we should take decisions on taxation in order to make a simple political statement. If you increase the tax on 1% of the population, you can't build a fleet of hospitals."
The crackdown on international tax dodging was stepped up last week after ministers announced a new international force against tax avoidance would be based in London.
The Joint International Tax Shelter Information Centre will work to identify and curb tax avoidance and shelters and those who promote and invest in them.
The rich have long used international tax havens to guard their wealth.
Some countries, such as the UK, New Zealand and Switzerland, effectively operate as tax havens to foreigners while their own nationals enjoy no such status.
Most tax havens are small countries which do not levy income taxes on anyone. Their governments gather what income they need from taxing local businesses.
Examples include the tiny nation of Andorra, in the Pyrenees between France and Spain, Monaco, on the Mediterranean, the UK colony of Gibraltar, and the Alpine nation of Liechtenstein.
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Saturday 18 May 2013
Temperature: 9 C to 13 C
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Temperature: 9 C to 18 C
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