Leading business and City figures were cautious yesterday in their praise of the Government’s U-turn on the taxation of non-doms, and most said that the devil could still be in the detail.

Simon Walker, the chief executive of the British Venture Capital Association, the main lobby group for the private equity industry, said: “We are pleased the Government has removed some of the retrospective and onerous disclosure requirements from its original proposal, although we await the detail of the legislation.”

Mr Walker said that several of the global private equity firms in London had more than 90 per cent of their employees registered as foreigners domiciled in Britain and that the changes could still see large numbers of those workers move overseas.

“The overall move still constitutes a chipping away of London’s reputation as a welcoming base for global financial services. What we need above all is certainty and stability.”

He urged the Government to give non-doms more time to understand how the changes would affect them. “These changes to the draft add further weight to the need for a delay in its implementation, as there will be virtually no time for taxpayers to take practical measures to arrange their affairs,” Mr Walker said.

Alan Yarrow, the vice-chairman of Dresdner Kleinwort and chairman of the London Investment Banking Association (LIBA), said that any move to dilute the Government’s proposals was welcome, but he said: “You just don’t know what to believe. You’ve got to get into the detail of these things and you cannot just react on a single statement.

“It’s clear that people haven’t got great sympathy for people who are non-doms . . . so the desire to keep them onside has to be looked at in economic terms and I don’t think that the homework has been done.”

Mr Yarrow, who is also on the Chancellor’s high-level group that advises him on issues impacting the City, said that even though Alistair Darling had agreed to some concessions, the worrying thing was the overall trend that non-doms were set to be punished.

“The key question is: is this the start of a trend? A lot of these non-doms are thinking this is just the first step and they’re saying to themselves: ‘Why bother, let’s just leave now.’ ”

Mr Yarrow said that it was not clear how many non-doms were working as investment bankers in the City of London, although the banks estimate that as many as 40 per cent of the 100,000 people employed by the City are foreigners.

At least 30 per cent of those are thought to have been in Britain more than seven years and subject the Chancellor’s new regime. “It’s a knee-jerk, populist reaction that clearly hasn’t been thought through.”

He said that he would petition Mr Darling to change the April 5 deadline, which is too soon to allow people to digest the changes. Mr Yarrow added: “It is without doubt a very, very dangerous area the Government is playing with, if you believe that financial services is central to the economy of this country.”

Specifically, the Chancellor made clear yesterday that he would not apply any changes retrospectively to the treatment of capital gains from offshore trusts. Non-doms had been angered by his earlier draft legislation, which stated that changes to the taxation of gains from trusts could be applied to gains as far back as 1996 or even earlier.

Chris Sanger, a partner in Ernst & Young, said that dropping the retrospective element was “welcome, to say the least” and was a clear policy reversal. “There was a real concern when the legislation came out. In terms of trusts, if a non-dom made a gain in the past and remitted after the new rules had come into effect they would have been eligible for tax purposes.”

It is also understood that the Chancellor will backtrack on his plans to tax capital gains from offshore trusts regardless of whether or not those gains are brought back into the UK, although that was not detailed in yesterday’s statement. For many American non-doms in London, that meant that they could end up paying tax twice, in the United States and in the UK.

Mr Sanger also said that the other concession – making any money brought into the UK to pay the non-dom charge nontaxable – was probably the most significant move and could save non-doms £20,000 each. In order to pay for the £30,000 charge, a non-dom would have to remit about £50,000 into the UK, he said.

John Cridland, deputy director-general of the CBI, said that the clarifications were a “victory for common sense . . . The proposals were clearly cobbled together in a hurry and went a lot further than the £30,000 headline figure, with the clauses on trusts and the retroactive aspects for taxing gains particularly punitive. It was not just a tax on the ‘super-rich’ but affected tens of thousands of accountants, lawyers and managers who help generate huge amounts of wealth.

“We need the Government to be more careful in future about sending out a message that Britain is no longer interested in attracting talent and ideas to our shores, or that those people already here, who contribute over £23 billion to the UK economy each year, are no longer welcome. It should be saying the reverse.”

Alex Henderson, a partner at PricewaterhouseCoopers, the accountant, said: “It’s good that they have been listening to what people have been saying . . . but time is running short.”

Low-tax contenders

Singapore
Non-residents pay a flat 15 per cent income tax

Switzerland
The home of private banking and wealth management. Typically, taxable income is assumed to be five times the accommodation rental paid in the canton the non-dom intends to live in

Dubai
No personal taxes other than import duties, a 5 per cent residential tax and a 5 per cent tax on hotel services and entertainment. Double taxation treaties make it even more attractive for individuals from high-tax countries

Ireland
One of Europe's main offshore financial centres is in Dublin. Ireland has agreements with dozens of countries that allow the minimisation of income tax rates

Alternative plans for taxing non-doms

October 1: George Osborne, the Shadow Chancellor, unveils plans to introduce a flat annual levy of £25,000 on all non-domiciled foreigners

The Conservatives estimate that there are at least 150,000 non-doms living in Britain

October 9: Alistair Darling, the Chancellor, uses his first PreBudget Report to criticise Mr Osborne’s plans. At the same time, he proposes that non-doms living in the UK for more than seven of the past ten years should pay a £30,000 annual fee to retain their favourable tax treatment

The Chancellor begins a consultation exercise but promises to introduce the measure this April. Labour believes that there are about 115,000 non-doms in the UK

The Treasury had proposed that non-doms would:
— face a £30,000 annual charge from April 2008
— could no longer shuffle income between bank accounts to avoid tax
— could no longer escape tax by bringing in foreign income as noncash assets
— could no longer bring in untaxable foreign income via relatives or offshore trusts
— could no longer avoid tax by putting UK earnings in foreign companies

Under the proposals by the Conservatives, non-doms would:
— pay a £25,000 flat rate
— The charge would cover all non-doms with no seven-year rule
— The Tories would raise an estimated £3.5 billion to finance the abolition of stamp duty on properties sold for less than £250,000 and raise the inheritance tax threshold to estates of more than £1 million