Martyn McLaughlin: Normality for Scots non-doms

Mohamed al-Fayed bought the 65,000-acre Balnagowan estate near Invergordon in 1972. Picture: Phil Wilkinson

Labour’s proposed attack on non-domiciled tax status would be felt keenly in London, but less so elsewhere, writes Martyn McLaughlin

IN PARTS of Britain, Labour’s proposed clampdown on non-domiciles has prompted an almighty tantrum, not least in the City of London, where its powerbrokers have wailed and gnashed their teeth over a policy they warn will cost the Exchequer dear. In other parts of the country, however, a rarified normality has been preserved.

If there has been scant focus on the impact on Scotland’s grand estates of Ed Miliband’s decision to target a convenient foible of the British tax system that allows people resident in Britain to cite another tax jurisdiction as their true domicile, there is good reason: the answer is none. Across the heather-strewn swaths of countryside owned by a coterie of bankers, sheikhs, oligarchs and their offshore trusts, the announcement is not viewed as a threat, more an inconvenience.

Broadly speaking, the policy is a fine one. It intends to deliver justice and fairness, and in tandem with the party’s promise of a war on tax avoidance and evasion, Labour believe it will prove totemic in the final weeks of the election campaign. Arguably, its greatest achievement will be to delineate Mr Miliband’s generation from that of New Labour and establish a narrative of the party of the many versus that of the gilded few – in England, at least.

The Coignafearn Estate is owned by Sigrid Rausing. Picture: Phil Wilkinson

But if Labour enters government, its efficacy will extend only so far. In the days after Mr Miliband’s announcement, I spent a few hours chatting with financial mentors conversant in the baroque language of tax who assist non-doms in Scotland in their dealings with HM Revenue & Customs.

They empathised with the opprobrium emerging from London, advising Labour that it will succeed only in sparking an exodus of influential business figures and investors at a time when the economy remains brittle.

The former editor of City A.M. deemed the initiative “delusional, dangerous garbage” concocted by “socialist headbangers” who view non-doms as ”miraculous geese” that are “happy to be plucked” while laying their golden eggs.

Continuing the Aesopian theme, a Telegraph leader dismissed it all as “pious nonsense.” It is, the paper thundered, a “cheap election stunt” that will end up “killing the golden goose”. Up here, however, feathers are not quite so ruffled.

A few non-doms with Scottish interests are known, such as Sigrid Rausing, the Tetrapak heir and beneficial owner of the 40,000-acre Coignafearn Estate south of Inverness. But the obfuscation surrounding the fiscal archaism means it is a demographic as elusive and taciturn as those who continue to buy U2 albums. They exist, it’s just that no one will admit it.

According to HMRC, there were 114,800 non-doms in Britain in 2012-13. With many clustered in London, the usual journalistic trick used to find a ballpark Scottish figure (divide by ten) is unreliable, but one senior tax adviser I spoke to put the figure in the high thousands.

If Mr Miliband enters Downing Street, I asked, do you anticipate a mass evacuation of the wealthiest of their number? A chuckle rattled down the telephone line ahead of the response. “The non-doms will still be here in Scotland just as often,” he said. “Our tax rules genuinely do attract people to the country. The super rich are internationally mobile, but they won’t leave – they’ll still keep their properties and interests here. They’ll just go non tax resident.

“So long as you’ve followed the rules to the letter, you could be in the UK for up to 90 or, in some cases, 120 days. You could still enjoy spending time at your estate in Scotland and instead of at least paying the flat charge of up to £90,000 a year plus tax on any UK sourced income, the Exchequer could effectively lose that.”

Another adviser said a Labour crackdown might have some impact on those who work in Edinburgh’s financial sector or Aberdeen’s oil industry (“There are more non-doms in finance and oil than anywhere”) but the estate owners, he agreed, would be less concerned.

“I’ve had a few calls from people, and the general feeling is that it’s a manageable risk,” he reasoned. “It’s not crisis time. They intend to keep their places in Scotland as they are very visible to their portfolios. They are predominantly somewhere to get away from it all.”

This gets to the heart of why the policy will not be feared by estate owners. Their Scotland is a cloistered playground of moorland and bracken, somewhere to take the air a few weeks either side of the Glorious Twelfth. Irrespective of the outcome in May, Browning barrels are being oiled in anticipation of the next foray.

The Scottish Government is doing more than most to bring equity to the tax system by withdrawing the non-domestic rates exemptions for sporting estates. In principle, Labour’s non-dom pledge should hasten that journey; in practice, it will continue at its current pace with only a few non-doms upping sticks.

There have been admonishments in the past against pursuing the rich for a fuller share of tax and still they have chosen to stay. Take the case of Mohamed al-Fayed, who struck a deal with HMRC to pay £240,000 a year for a five years in lieu of tax on his worldwide income. After the taxman did his sums and ended the “forward tax” arrangement, Mr Fayed took the Revenue to the Court of Session. His argument was thrown out. The Fayeds, Lord Gill decreed, were “a privileged group who are not so much taxed by law as untaxed by agreement”. Thirteen years on from that ruling, Mr Fayed still presides over Balnagowan, the 65,000-acre estate in Invergordon he has owned since 1972.

With non-doms, the ultimate question is not one of price, but prestige; even for those who choose to reside here year round, a heftier tax bill inclusive of offshore earnings will be viewed as a preferable expense to the loss of status commensurate with a Scottish getaway. It is a question of risk and reward; who better to do such calculations than those with unimaginable wealth?