Non-doms: called into question

The row over private equity and tax is growing. But more than that, the tax status of rich wealth-creators is coming under growing scrutiny. Fears of inequality are fuelling criticisms of many parts of the tax system, including one of its oldest chestnuts, non-domiciliaries.

What happened?

Sir Ronald Cohen, a co-founder at equity giant Apax, speaking as the Treasury Select Committee investigated the private equity industry, said that he feared ‘a riot’ caused by an entrepreneurial economy that has created a gap between the rich and the poor.

That, in turn, has led to questions being asked about his tax status, and whether or not he is a ‘non-dom’, entitled to avoid tax on income earned abroad. The private equity debate has dragged the whole gamut of tax issues and the wealthy into the spotlight.

The Evening Standard subsequently revealed that only 65 out of 400 UK-based individuals, capable of making £10m a year or more, were paying any income tax.

That, as some of the industry’s leading lights (pictured here) were grilled by the committee, is building a political storm.

What’s going to happen?

On top of Gordon Brown facing a potential postal strike during his first week in office, the last thing he’d want to deal with would be concerns over the tax status of the ultra-rich. While, at the same time, big drivers of the UK economy in recent years ­ PE firms ­ face a public flogging.

The Treasury has been looking into non-dom rules for years, and Brown has never suggested this so-called tax loophole would be closed any time soon.

Tax campaigner Richard Murphy has his thoughts: ‘The UK’s domicile laws are the subject of a Tax Justice Network campaign,’ he says.‘They’re unjust, help make Britain a tax haven, have fuelled the ridiculous price of housing in the South East in particular, are pricing ordinary people out of something as basic as a place to live and are fuelling the asset stripping activities of the private equity sector.’

The Lib Dems seem clear about what they would do in power. Liberal Democrat Treasury spokesman Vince Cable said the party would close the non-dom loophole if they had stayed in the UK for more than 17 years.

Will the issue will be top of Brown’s agenda as prime minister? On past form, maybe not, but the calls for change are increasing.