So what is so bad about being non-dom?
Non-dom tax status is causing much political controversy, but what exactly is wrong with paying UK tax on your UK income and foreign taxes on foreign income? If you were inventing a tax system, that seems a sound starting point.
It is a different issue whether someone who does not fully commit to Britain and its tax system should be sitting in the House of Lords deciding laws, including taxation legislation. And it may be an issue for a non-domiciled taxpayer to have a hand in running a political party or to be funding the campaign in marginal parliamentary seats. But the principle of paying tax in the place where income is earned has a logic.
Why shouldn’t wealthy Parisian bankers coming to London pay UK taxes on their earnings over here while their investments at home would be taxed at French rates. And a British engineer accepting a post on the Middle East would pay local taxes on his income there but still pay UK taxes on any savings or rental income from his or her assets left in this country.
The non-dom status effectively allows that to happen, though countries are increasingly selling the privilege by demanding a small part of the taxes on foreign income that they are forfeiting. The UK price is £30,000 a year to remain non-dom after seven years in Britain.
And without the non-dom facility, the global mobility of labour would be much reduced. There would be fewer foreign bankers and businessmen in Britain and a smaller number of UK professionals working abroad.
Naturally people will arrange their affairs to minimize their tax liabilities, but it is better that Britain collects some tax from the foreign workers based in the UK than collecting none. And – in most cases - it is better that foreign executives come to the UK than for them to take their skills and spending power to some other overseas country.
The concept of taxing money where it is earned is not unreasonable, just as turnover taxes such as VAT put a levy on money where it is spent.
Nor need capital flows be controlled to allow this tax basis to work. The engineers who earn money in the Middle East and pay low local income taxes should be allowed to bring their savings to Britain tax-free so long as they pay UK tax on the interest, dividends or profits earned on the investment in the UK. If the savings are invested abroad, that would not be a UK matter unless the capital or income was remitted to the UK and invested here. Equally, if foreign workers invest their money in Britain they would pay UK taxes: if they send it abroad they would not.
There is political capital for both parties in making accusations about their supporters who have non-dom status, but the debate would be better served if they asked what is wrong with people – especially non-political people – choosing to pay tax where they earn it instead of suggesting this is a social evil.
