Miliband Vow to Tackle Tax Loophole Seen Hurting City of London
Labour Party leader Ed Miliband’s vow to close a tax loophole sparked fresh scrutiny on wealthy residents and drew warnings the plan could threaten London as one of the world’s major financial centers.
Miliband pledged on Wednesday to abolish the non-domicile status if he’s elected on May 7, allowing some wealthy people living in the U.K. to avoid paying tax on all of their income if their permanent residence is considered to be abroad. The proposed changes could make it more difficult and more expensive for British companies to hire executives, said Adam Jackson, managing director at hiring firm Astbury Marsden in London.
“We could see a leakage, rather than a flood, of internationally-mobile bankers, who have previously benefited from non-domicile status in the U.K., moving to countries offering more favorable tax regimes,” Jackson said. “Non-domicile status had been viewed as an incentive for senior bankers moving to the U.K. and it had been a key selling point over taking a job in other financial centers.”
Miliband is seeking to drive a wedge between his party and the ruling Conservative-Liberal Democrat coalition by targeting the privileged wealthy. His party has pledged to tax hedge fund’s share transactions and levy a tax on homes valued at more than 2 million pounds ($3 million).
‘Arcane Loophole’
Scrutiny of the loophole was revived in February, when HSBC Holdings Plc Chief Executive Officer Stuart Gulliver, who has non-dom status, had to defend his past tax arrangements, with bonuses paid into a Swiss bank account linked to a company registered in Panama, before he took over his current role.
About 116,000 residents with non-dom status benefit from an “arcane 200-year-old loophole,” which “makes Britain an offshore tax haven for a few” and is costing the country hundreds of millions of pounds, according to Miliband.
“Miliband is anti-finance,” said Jason Kennedy, CEO of London-based recruitment firm Kennedy Group. “It’s a problem for London. The hedge fund guys for example will get up and walk, they are very mobile. They will go to other places.”
London is the world’s second-ranked financial center after New York, according to the Global Financial Centers Index. The U.K. capital’s position has been hurt following a series of misconduct by banks including the rigging of global currency markets that undermined the reputation of the City, as London’s main financial district is known.
“There is a danger that the changes could deter overseas investors from settling and investing in the U.K. and ultimately decrease the tax collected from these individuals rather than raise extra funds,” Geoffrey Todd, a partner at law firm Boodle Hatfield in London, said in an e-mailed statement.
