London's role as a tax haven for the world's billionaires and millionaires is starting to look less assured, thanks to a shakeup in the country's tax-friendly status. The British government is planning to force anyone who has claimed non-domiciled status for seven of the past 10 years to either pay pound 30,000 ($59,000) in annual fees, or pay taxes to the UK for their outside earnings.
Though the government has reportedly dithered on the plan due to a recent uproar from businesses and lobbyists, a Treasury spokesman told Forbes.com on Wednesday that the policy was set to be implemented this April.
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Non-doms, as they are known, are British residents who have registered for "non-domiciled" tax status, meaning they call Britain their home and so don't have to pay tax on their earnings outside the country. It's made Britain, and London in particular, a veritable tax haven for wealthy businessmen like steel billionaire Laskshmi Mittal, Russian oligarch Boris Berezovski and a host of American bankers. It's also one big reason why so many of the billionaires who live in London aren't British.
Businesses in London love the loophole. In the last decade or so it has boosted the number of wealthy Russians, Arabs and others buying tailored suits on Savile Row, snapping up prime real estate in ritzy Knightsbridge, and sending their children to fashionable private schools.
But while pound 30,000 ($59,000) won't dent the wallets of Lakshmi or Boris, they'll both worriedly consult their tax advisers right now. The British government also wants to tighten regulations for bringing non-doms' assets into the country, and, most worryingly for the foreign super-rich, provide more information on their offshore holdings--think Swiss banks and opaque investment trusts on Jersey and the Cayman Islands. There's even a chance that non-doms will have to start paying taxes on the money they take out from their offshore trusts.
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The whole notion of the "non-dom" is a remnant of the now long-unraveled British Empire. Back in the 19th century, anyone born on a British colony in somewhere like Africa or Asia could eventually live in Britain and not have to pay tax on their continued earnings from those distant lands.
In recent years politicians have threatened to close this tax loophole, but haven't done so. Along with the good it seems to do for the capital's economy, many wealthy non-doms are also generous donors to political parties.
The British government estimates that there are 115,000 non-doms in Britain, and that about a fifth of them have lived in the country over seven years, meaning that some 23,000 people will already have to either pay the £30,000 ($59,000) annual fee, start paying UK taxes, or leave. Treasury spokesman John Battersea estimates 3,000 will leave Britain.
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But that number could end up being higher. The American Embassy in London has received a number of concerned calls on the issue. The non-doms are fretting. "I'm upset and disappointed," said one American media businessman who has lived in London for 18 years under "non-domiciled" status. "I love this country, but I will seriously consider leaving if my wife and I must each pay an additional pound 30,000 ($59,000) to remain here."
He added that he would need to earn an extra $100,000 from his US employer each year to cover the cost, and he doubts that will happen. "I wish they'd told me this 18 years ago."
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