Miliband Vows to End U.K.’s ‘Indefensible’ Non-Domicile Loophole

Ed Miliband hardened his stance on tax avoidance by pledging to end the U.K.’s non-domicile loophole used by the wealthy, hitting back at Conservative accusations a Labour government would hit working families the hardest.

“There is no bigger symbol of this failure to expect people right to the top to play by fair rules than the failure to deal with tax avoidance,” the opposition leader said in a speech Wednesday at the University of Warwick in central England.

So-called non-dom status allows some people living in the U.K. to avoid paying tax on all of their income if their “permanent home” is regarded as being abroad. About 116,000 residents with non-domiciled status benefit from an “arcane 200-year-old loophole” that costs Britain hundreds of millions of pounds and “makes Britain an offshore tax haven for a few,” Miliband said.

By targeting some of Britain’s richest residents with 29 days to go to the election, Miliband is intensifying his attack on Prime Minister David Cameron’s Conservatives, whose polices he says benefit only the wealthy. A non-dom can elect to be taxed on a remittance basis, which means that any foreign income and gains are only taxed if they are brought into the U.K. It’s not dependent on nationality.

Miliband’s move comes a day after Conservative Chancellor of the Exchequer George Osborne published analysis showing taxes on earnings rose under the last Labour government and argued the party would increase taxes on working families again if elected next month.

‘Fair Rules’

The Tories have pledged to eliminate Britain’s budget deficit solely through cuts in spending, much of which would fall on welfare. Labour and the Tories are neck-and-neck in polls in the run-up to the May 7 election, with neither side set to win a majority in Parliament.

Emphasizing the need for “fair rules,” Miliband cited his promises to tax bank bonuses and freeze energy prices, both policy pledges that have been widely criticized by business groups, but well-received by voters. Removing the non-domiciled tax loophole would send a message that “anything goes” for the wealthiest is unnacceptable, he said.

Earlier this year, HSBC Holdings Plc Chief Executive Officer Stuart Gulliver, who has non-dom status, had to defend his past tax arrangements to U.K. lawmakers. He agreed with Parliament’s Treasury Committee his pay setup appeared “quite strange.”

‘Serious Risk’

“There are people who live here in Britain like you and me, work here in Britain like you and me, are permanently settled here in Britain, like you and me, but aren’t required to pay taxes like you and me,” Miliband said.

Labour’s announcement was attacked by the Institute of Directors lobby group.

“It’s very unclear what additional revenue would be raised, but the U.K.’s international reputation would be put at risk,” IoD Director General Simon Walker said in a statement. “There is a serious risk that large numbers of the international financial community, who have headquartered themselves in London at least in part because of our tax regime, will now exit the country. Politicians at the height of an election campaign may consider this a price worth paying, but we do not.”

Under the non-dom rules, those claiming the status pay an annual charge to the Treasury of 30,000 pounds ($45,000) to 50,000 pounds to be taxed on a remittance basis. Non-doms paid 6.2 billion pounds in income tax in the 2012-13 fiscal year and 223 million pounds in charges, according to London-based law firm Pinsent Masons.

‘Totally Arcane’

Osborne said in a statement that the Labour plans did not mean the non-dom status would be completely abolished, a “confusion” which he said was a “reminder of why they can’t be trusted with our economy.”

Under a Labour government, everyone who has made the U.K. their permanent home would pay the same taxes starting in April 2016, according to the party’s statement. Temporary residents would be taxed solely on income and gains in the U.K.

“These rules are totally arcane, they go back to colonial times,” Labour’s finance spokesman, Ed Balls, told BBC Radio 4’s “Today” program. “It is a fair decision for us to make to get the deficit down. I think it will be welcomed by business, rather than being rejected by business.”

Miliband said Cameron was “defending the indefensible” by keeping the rules in place. He said ending the loophole would raise “at least hundreds of millions of pounds” and denied the wealthy would leave Britian.

Heard Before

“We’ve heard all of these arguments before,” he said after his speech. “It’s what people with special privileges say when they want to go justifying those special privileges.” Labour has already pledged to raise the top rate of income tax back to 50 percent from 45 percent on earnings above 150,000 pounds a year.

The number of “non-doms exploded under Labour” during its last term in power ending in 2010, the Conservative Party said in an e-mailed statement. “We’ve increased the non-dom levy and cracked down on wealthy foreigners who avoid tax by ensuring they now pay stamp duty on their properties.”