Election 2015

Reality Check: What do we know about non-doms?

Expensive London property Image copyright Thinkstock

Labour plans to change the non-domiciled rules in the tax system if they win the election.

At the moment, some people who live in the UK can claim in sometimes obscure ways that their permanent home is in another country, which may limit the amount of tax they pay.

It does not make any difference to the way they pay tax on money made in the UK, or indeed to money made outside the UK and then brought into the country - that is all taxed in the same way it would be for anyone else.

What is important is how much tax is due on earnings above £2,000 that are left overseas.

If you earn more than £2,000 overseas, you can choose to pay an annual charge that will mean you do not have to pay any further UK tax on those earnings. At the moment it is £30,000 if you have been living in the UK for at least seven of the previous nine tax years, rising to £60,000 once you have been in the UK for 12 of the previous 14 years and £90,000 for 17-year residents.

There are about 116,000 people registered as non-doms for tax purposes. Labour plans to change the rules so that no new people will be able to claim non-dom status after April next year, while existing non-doms will have a number of years' grace, probably four or five, to sort out their affairs before their status changes.

Could cost money

Not all of those people choose to pay the fee at the moment, but we know from Financial Times research that those that did paid £4.6bn in income tax in 2012-13, the most recent year for which figures are available.

We also know that in that year the £30,000 and £50,000 fees paid added up to £226m.

So how much money would Labour's policy raise? The simple answer is that the party does not know. The estimate from Labour is that it will be "at least hundreds of millions of pounds", which is not a great deal given that the government raises more than £150bn a year through income tax. Indeed, a few hundred million pounds collected from 115,000 people is only a few thousand each.

Critics of the policy - and indeed shadow chancellor Ed Balls in a BBC interview in January - warn that it could actually cost money rather than raising it.

The danger, they say, is that when you try to raise taxes on small groups of wealthy people they change their behaviour.

They say that the change in non-dom status would threaten both the £4.6bn that is already being raised and also an indeterminate amount of jobs and spending being supported by people who may change their behaviour under a new tax regime.

The tricky thing for assessing the value of this policy is that we have no idea how much the people paying the annual fee would have paid in tax if they had not had non-dom status. So the policy could cost money, or it could raise billions of pounds.

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