Former Conservative Shadow Treasury Chief Secretary Howard Flight is warning that the proposed crackdowns on non-doms by both the Government and Tories may result in widespread unintentional evasion.
Flight says up to five million foreigners living in the UK are not registered as non-domiciled for tax purposes but will be required to declare their offshore income or pay the 30,000 annual flat rate charge proposed by Chancellor Alistair Darling.
He says a significant number will not realise their obligation, which will result in widespread tax evasion.
He says: “There are a lot of people in this country who are non-domiciled from a point of law. Many of these people have got overseas income, whether it is a flat or a shop that they let out, and the new law means they will have to declare that or pay the tariff.
“But the reality is that hundreds of thousands of people will not even realise and therefore will not declare it, so what you have got is a tax regime that creates evasion, albeit mostly not deliberately.”
Flight blames Conservative Shadow Chancellor George Osborne for “letting the non-dom cat out of the bag” by having originally proposed a 25,000 flat-rate tax. He bel-ieves that both parties’ proposals will see talented individuals flee the UK, potentially taking 2bn in tax revenue with them.
He says: “It was unwise of George. A few people abused it, so it is not surprising that both parties thought something needed to be done. The question is, do you want this country to be attractive to foreign businesses and executives or not?”
Flight, who left Parliament in 2005 after falling out with then Tory leader Michael Howard, believes a 10 per cent rate of capital gains tax would have been the best way to simplify the tax system.
He says: “Not only would a 10 per cent rate have been hugely popular but it would have raised revenues because everyone would start to buy and sell more actively. What they have done is a veiled way of increasing taxation that means lots of people are worse off.”
Flight’s new investment company, Flight & Partners, this month launched a recovery fund which aims to offer investors the opportunity to benefit from difficult conditions by investing in companies with turn-round potential. The firm contracts the fund management to boutique firms with specialist skills.
Flight & Partners is now looking to restructure a small pre-IPO fund which Flight believes could be lucrative.
The firm is also considering taking modest stakes in banks in Asia and the Near East which are being modernised before potentially being bought by major international banks.
Flight says the FSA seems to regard small adviser firms asa nuisance but points out that Financial Ombudsman Service figures show that it tends to be bigger firms that are found wanting. He says he does not want the retail distribution review to be “yet another stick with which to beat smaller IFAs who are doing a better job”.
He believes that full and clear disclosure of commission is the answer as most consumers prefer to pay commiss-ion rather than a regular fee.
Flight is adamant that the Conservatives will win the next general election because he says the country has woken up to the fact that the present Government is incompetent.
He says: “We have come quite close to the Communist police state model. The Government is constantly and quite uselessly trying to use legislation to control peo-ple’s behaviour.
“It is not just crass economic failure as people’s lives and commerce now have such massive amounts of red tape, such massive legal complexity that we are tied up in string. I think they are incompetent and it can only get worse.”
He believes Osborne will rise to the challenge in Government and says Conservative leader David Cameron “has a lot more depth to him than people realise”.
He says he would jump at the chance to return to Westminster although he is not actively looking for a potential seat.