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LONDON, July 8 (Reuters) - Britain will scrap special tax breaks for long-term residents who claim “non-domicile” status in a surprise incursion by the ruling Conservatives into political territory previously occupied by their Labour opponents.
The non-dom tax status, as it is widely known, has caused controversy for years because it allows some people who live in Britain but declare their permanent home to be elsewhere to avoid tax on most of their earnings from abroad.
“It is not fair that people who are born in the UK to parents who are domiciled here, can later in life claim to be non-doms and live here,” George Osborne, the finance minister, said in a speech presenting a post-election government budget.
“It is not fair that non-doms with residential property here in the UK can put it in an offshore company and avoid inheritance tax,” he told parliament.
Osborne stopped short of abolishing the non-dom status altogether, as pledged by then Labour leader Ed Miliband in the run-up to a May 7 election won by the Conservatives, but said people would no longer be able to claim it indefinitely.
During the election campaign, the Conservatives had denounced Miliband’s policy, arguing wealthy non-doms would simply leave the country and the Treasury would lose tax revenues they paid on their British income.
But in a change that was not trailed in the Conservative campaign manifesto, Osborne said anyone resident in Britain for more than 15 of the past 20 years would pay full British taxes on all worldwide income and gains.
“Non-dom status was meant to be temporary, but it became permanent for some people. Not any longer,” he said.
Official figures showed the measure was not expected to raise significant amounts of money for the Treasury, but it could make more of an impact in terms of political symbolism, coming from a party that has faced controversy over non-doms.
Labour spent years attacking the Conservatives over the non-dom status of Michael Ashcroft, a British-born billionaire with ties to Belize, in Central America, who served as Conservative treasurer and deputy chairman at different times. Ashcroft eventually relinquished the status to enable him to retain his House of Lords seat.
Labour have also criticised the Conservatives in the past over the amounts of campaign money they raised from donors enjoying the controversial status. The Conservatives counter-attacked that Labour also received donations from non-doms, albeit in smaller amounts.
Osborne appeared to have stolen Labour’s thunder, at least in the short term, over the non-dom issue. Acting Labour leader Harriet Harman did not mention the policy in her speech responding to Osborne in parliament.
The government predicted around 15,000 people would lose their non-dom status under the new rules. The total number of people who enjoy the status as things stand is estimated at about 115,000, although no public register is maintained.
Osborne said he would also tighten the rules for those who retained the status, including making them pay the same taxes on residential property in the UK as other taxpayers. (Additional reporting by Paul Sandle; editing by Stephen Addison)
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