Perhaps the most egregious anomaly of the UK tax system is the non-domicile rule, under which wealthy individuals who are long-time residents in Britain, or even British citizens, can avoid paying tax on their overseas earnings. The rule, which dates back to King George III in 1799, was partly mitigated when the last government introduced an annual charge of £30,000 for those who have lived in Britain for seven of the past nine years. Those who have lived here for 12 out of the past 14 years now pay £60,000.
Britain remains exceptional in its refusal to remove non-domicile status from permanent residents. For most of the 116,000 individuals who take advantage of the loophole, many of them among the richest people in the world, the annual charge is small change. They enjoy the rights to live in Britain – indeed, they relish our freedoms and benign political system – and to use British public services, without contributing anything by way of taxation in return. As a result, London in particular has become a kind of playground for the deracinated international plutocracy and property prices in the capital have become grotesquely inflated.
On Wednesday 8 April, Ed Miliband announced that Labour would abolish the non-domicile regime, stating that the liability to taxation should be based solely on residence. “[There] are people who live here, like you and me, work here, like you and me, are permanently settled here, like you and me, and even were brought up here, like you and me, but just aren’t required to pay taxes like you and me. They don’t pay UK taxes on the income they receive abroad. They take advantage of an arcane, 200-year-old loophole,” he said in a speech. “It is time to end all of these years of history.”
He went on: “If your father wasn’t born here you can qualify, even if you were. So old-fashioned are these rules they don’t think it’s even relevant where your mother was born . . . I want to be clear. I don’t blame these individuals for taking advantage of non-dom status. These are after all the rules and they are playing by them . . . this is a responsibility of governments of all parties.”
Labour’s initiative should be welcomed. It might not raise huge amounts in revenue but it is a statement about the kind of country Britain wishes to be, and the values that it cherishes: too many people who honestly pay their fair share in taxes feel that the system favours the very richest and is rigged against them.
We believe that a future Labour government should be bolder still and, in time, should change the rules concerning those ultra-rich British citizens who reside abroad for tax reasons. If these people desire the rights and security that come with British citizenship, they should be required to make a fair contribution in taxation to the British state, even if they choose to be resident in Monaco or some other sun-blessed low-tax haven.
If an American wishes to retain US citizenship he is liable for federal taxes no matter where he lives in the world. It is a convention that dates back to 1861 and the American civil war. Surely it is time for all Britons who hide their money tax-free in overseas accounts or in tax havens to pay up, as Americans are obliged to do – or renounce the right to be British.