Having complained with ample justification of excessive fiddling during Gordon Brown’s reign as chancellor, tax advisers confronted Alistair Darling’s debut with little new to get steamed up about. Given the storm of protest that met Darling’s wildly-reactive pre-Budget report last autumn, this was certainly not because there was nothing to moan about. But it was a long time since the contents of a Budget had been so comprehensively trailed ahead of the day itself, a move presumably intended to reinforce the steady-as-she-goes message in the face of continued turmoil in global financial markets.
On that yardstick, advisers are pretty unanimous that Darling delivered, having unveiled a series of measures of little import. The thing that tax and private client lawyers were most concerned about, taxation of non-domiciled individuals, gained the most attention and a fair amount of grudging acceptance (you couldn’t call it approval). Darling effectively announced U-turns on everything except the actual charge of £30,000 for non-doms wishing to maintain their tax status after seven years in the UK, going a long way towards damping down anger to the level of mere simmering resentment and distrust.
The announcement that those earning less than £2,000 abroad are exempt from the charge and the unusual step of publishing an opinion from Skadden Arps Slate Meagher & Flom giving weight to the Treasury’s attempts to prevent double-taxation with US authorities, are considerable results. Having been battered for weeks by a sometimes hyperbolic campaign claiming the reforms would undermine the City, few lawyers are still predicting that impending exodus from Chelsea and Mayfair. “Given where we thought we might be a couple of months ago we are all breathing a sigh of relief” says Withers’ Chris Groves.
And whatever miscalculations the Government made, some of the criticisms were hard to sustain, especially the parallels drawn with New York’s loss of status after Sarbanes-Oxley (Sox). Sox was sweeping reform that increased the cost of capital and ushered in tough disclosure requirements for foreign companies shopping globally. It also added pressure on existing stress points, notably huge litigation risks and, to a lesser extent, excessive red tape and the US’ damaged reputation after the Iraq invasion.
In contrast, the non-dom policy is about taxing individuals and many of those contributing to the City cannot easily go elsewhere because, by definition, they work in world-class financial centres, not relative backwaters. And the history of markets shows that once liquidity amasses in one location, it is hard to move (though the US managed it in the 1960s when they taxed the Eurobond market to Europe). This saga has done some damage but, having pledged to avoid further taxes of non-doms for the current and next Parliament, it should prove no more than a minor scrape.
Elsewhere, a tax reform that had far more chance of undermining the City Ñ changes to capital gains tax Ñ was actually discreetly welcomed by some lawyers. Despite raising the lowest rate payable from 10% to 18%, the feeling is that this still leaves the UK as an attractive jurisdiction and will do nothing to undermine London’s strength in private equity. Indeed, the 18% rate will be easier to access for some businesses that didn’t want to go through the hassle of securing full taper relief. Meanwhile, the Treasury underlined its pro-City credentials with well-received announcements designed to bolster London’s status as an Islamic finance centre. Overall, it is back to pro-City business as usual and the fiddling will doubtless be back in force next year.
Talkback: Did Darling's debut do it for you? Click here to have your say.
A great deal of damage has been done by Darling since he became chancellor. He seems to have rushed out the proposals without thinking of the implications. Overall the non-doms issue will do more damage than good. They really should have consulted more people. A sort of tapering system introducing the fee a step at a time would have been preferable.
Nothing really changed from the pre-budget announcement, they just tinkered with it around the edges. I don’t believe that 18% [capital gains tax] is that bad. Some people were expecting a lot more. Deals will still happen after the April deadline but it won’t be as busy as this month. I have noticed that there’s a flood of people trying to sell their companies before the year-end. Sure there will be some people affected by the non-doms charge but the people we deal with are seriously wealthy. 30k won’t scare them into leaving town.
With the economy slowing and rising prices and families struggling to feed mouths, this Budget taxes the poorest and entrepreneurs. It is an uninspiring Budget that is against the interests of business and has been met by an unimpressed audience
The general consensus among all parties is that non doms should pay a fair level of tax, but even now the level of disclosure required is enough to make them uncomfortable. The lack of foresight and consultation on this issue has been staggering.
The CGT rises have been met by fury by a lot of entrepreneurs and this will act as the trigger as well as a cause for money to leave the City. It is the tipping point and businesses are losing confidence.
Given where we thought we might be a couple of months ago we are all breathing a sigh of relief. Since the Government’s initial announcement on non doms they have been crawling back and crawling back when they realized the trouble they had caused.
It is the Government’s prerogative to legislate but what we expect in return is a considered legislation in a considered way and much of the announcements were made before with little understanding of the impact. They have led to a feeling of uncertainty in the non dom community that they are being deliberately targeted which is damaging to us as a financial centre. With CGT they have taken a sledge-hammer to crack a nut when all they wanted to crack down on was the hedge fund managers.
They have tried to make the non-dom charge look like an income tax but what is most striking is that instead of including a US statement, they have included a memo from Skadden, which was very detailed. This just tells me that the US hasn’t agreed. I would be astonished that the US has agreed as there are a number of issues. This is a nightmare for us to figure out. We have a mix of Americans as clients, and this is a nightmare. Banks are starting to fire people but they will re-hire again in the future, but where will they grow? London or Zurich? This is a competitive market. On capital gains, change is a good one for Americans. Ten per cent was available in limited circumstances. Eighteen per cent capital gains rate doesn’t strike me as unfair approach.
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