UK Labour party will abolish the non-domicile tax rule if elected

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Labour leader Ed Miliband declares plans to abolish the non-domicile (non-dom) tax rule if his party wins the election, claiming it is being used for tax avoidance by high net worth individuals. What long term effects will this have on the economy?
During a speech at the University of Warwick, Mr Miliband addressed what the non-dom tax status rule for the UK represents an increasingly obsolete 200 year old loophole, that no other major country in the developed world offered a similar kind of tax break.

He went on to say that the current tests in place to determine non-dom status are “old fashioned and insufficiently rigorous”. There are now approximately 115,000 non-doms, costing the UK hundreds of millions of pounds, effectively building an offshore tax haven for some and it can no longer be justified.Mr Miliband also claims that as well as allowing wealthy people to avoid paying tax on overseas income, the current non-dom rules also allow non-doms to use offshore trusts to buy UK homes and avoid inheritance tax, or to receive tax free repayments.

Under new Labour plans, non-dom status will be abolished so that everyone who enters the UK, and makes it their permanent home, pays tax in the same way from April 2016. A future Labour government will look to amend the length of time for which the new rules for temporary residents should apply and on the transition period, with four years suggested as the likely timeframe.

Currently, the yearly charge for those who have been in the UK for more than seven years is £30,000. Issues regarding non-dom status were raised recently during Parliamentary committee evidence sessions examining the alleged use by UK taxpayers of HSBC’s private Swiss bank to handle offshore funds. HSBC’s chief executive Stuart Gulliver, has non-dom status despite running a UK-headquarted bank and being based in the UK himself.