As I mentioned this morning, George Osborne has talked about domicile and changing the rules. Based on reports at that time I thought has doing a substitution of a new flat tax for those non-domiciled. I was not alone. Several others thought the same, but it's now clear he meant something different.
What he seems to be saying is:
Osborne will this morning announce that all non-doms would pay a steep, once-a-year charge of £25,000 for the privilege of belonging to the non-dom club. That would be on top of any tax they already pay to the Exchequer on that portion of their global income classified as UK earnings.
And reports say his calculations work like this:
How much additional revenue for the Exchequer would that raise? Well official figures show that in 2005 there were 112,000 non-doms. And accountants believe that, thanks to the City boom, this may have risen to 200,000. If some non-doms become doms or flee these shores rather than pay the 25 grand membership fee, the take from the new levy could be about £3bn (and to reiterate, that's additional to the £3bn or so they already pay).
The £3 billion figure is from the Treasury. I quote it in my own research on this issue, here. But after that everything else Osborne says is wild guesswork, rather than the reasoned analysis I reported.
First of all there's no way of knowing if there are 200,000 non doms. It's pretty wildfire inflation if true.
Second, if ( as I assume) the income of those who claim non-dom status is likely to be over £100,000 then as my research shows 73% of them will have income of between £100,000 and £200,000 and they will pay tax of, on average, £41,500 if taxed on their world wide income. That's £14,700 more than they pay on average at present. So paying to join the non-dom club appears illogical for this group. Better to pay tax on worldwide income you'd think.
Now this group will largely be income earners. They'll mainly work in the City - we know that's true. And these are the people who supposedly 'add value' to our economy by being here. Maybe they do. But they're going to be charged a lot more for the chance of doing so, and on a highly discriminatory basis. Are they going to feel fed up as a result and leave? Well, if anyone is going to do so as a result of this rule change they are. Let's assume (as my research did) that 20% of all non-doms leave. As I'll note below, only this group will have incentive to do so under Osborne's rule so this group will suffer a loss of at least 28,000 in number on the assumptions I used.
Now let's do the calculations. 73% of 112,000 (or 82,000) will pay £14,700 more, i.e. about £1.21 billion more. On the other hand 28,000 of those now paying £41,500 on average each will leave. That's £1.16 billion lost.
As for those 30,000 non doms earning more than £200,000, their average earnings would, if their income distribution were the same as domiciled people, be £444,000 and their average tax bill would be about £155,000 if subject to tax on their world wide income. These people are not wage earners, by and large. The vast majority of their income could be booked offshore.
Now note that what Osborne said that he would ask no questions about the offshore income of these people - they would know he said that such issues were beyond enquiry. The implication is obvious. The remittance rule would have to go - that follows from what he said or he could not deliver the promise. So these people will now effectively pay £25,000 each. That's a loss of £54 million form now.
So, we have £1.21 billion gain less a £1.16 billion loss and a £0.05 billion loss - which happens to come to NOTHING.
In other words Osborne will raise not one bean from his change in the rules to pay for Inheritance Tax. But, the mega wealthy who support the Tory party will be much better off and beyond enquiry as to their wealth, those who work for a living here will be worse off and will quit the UK in disgust at being treated in discriminatory fashion, the average UK person will know the rich can now but their way out of taxes and the UK will gain not one iota. Indeed, because the remittance rule will go expect large numbers of non-doms to contract from offshore companies and just see their tax yield fall is my forecast.
It still adds up to a barmy tax policy.
And an unjust one.
My original comments stand.
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you may have a point, but if you are disputing 200,000 as the number of them then it seems somewhat unreasonable to ascribe income characteristics to them. BTW on Radio 4 Today this morning Osborne said that 200,000 individuals was a number estimated by (unnamed) economists, but his take was based on 150,000 individuals.
[…] Osbrone’s domcile numbers won’t work […]
Alastair
I have not used 200,000 or 150,000, but my own more certain data.
Richard
It seems to me (but I’m probably wrong) that your assumptions above do not tally with your previous numbers.
Firstly, the error that 28,000 is 25% of 112,000. Indeed on the above asumptions, would it not just be 20% of the 82,000 that pay more?
Secondly, though, and more importantly, if you re-work your previous research using the above assumptions, I get the following:
82,000 pay an additional 14,700, which is £1.2bn;
The other 30,000 pay an additional £128,214 on average, which is £3.8bn.
This gives a total of £5bn.
Take off 20% for those who leave, gives £4bn.
Thus the gain on the current £3bn is £1bn. But you had a gain of £4.3bn.
Richard
Your logic does not follow – you’re assuming Osborne abolishes the domcile rule as I would like – but that’s the last thing he’s doing. He’s very definitely keeping it. So you can’t undertake the calcualtions you’ve done.
In adition, you’ve ignored the IHT and Capital Gains Tax elements of my work.
And that, as I admit, I’ve reweighted the upper quartile in my above calculation.
Bet yes, I should have 22,400 leaving. Mea culpa on that one. But he thinks there are 150,000 non doms – so at least 30,000 would go. I think it’s fair to say in the circumstance that the substance of what I say is entirely logical – and we should never get too worried about complete accuracy in these things – the data doesn’t support that degree of precision.
Richard
Personally I think you are missing the point. He is simply suggesting that he can take tax from non domiciled individuals to pay for changes to inheritance tax and stamp duty. The actual impact of any change he makes, assuming he gets such an opportunity, is of course impossible to predict given a) the complexity of the system he is proposing to tinker with, and b) the uncertainty inherent in pre-election policies. In planning terms, you are making different assumptions.
So, the point you are missing is that he is playing election politics, and as such his comments are not relevant to tax justice. As it happens the same will be true of the other political parties.
Alastair
I don’t agree
He says his figures were costed
I say they’re costed wrongly
Of course my figure is an estimate – I’ve never denied it – but at least my assumptions are transaparent.
You’re free to decide who to believe!
Richard
Richard,
I know no more than you about Osborne’s plans, but “asking no questions” about non-doms’ offshore income doesn’t necessarily mean scrapping the remittance rule. Once it’s remitted it’s in the UK not offshore.
If he keeps the remittance basis then his plan will collect more tax than the present system (but I agree it seems unlikely to collect anything like as much as he claims).
Richard
Richard
I guess depsite your experience as an accountant you’ve never dealt with an enquiry on the remittances of a non-domiciled person as a result of this comment.
The Revenue definitely do want evidence of offshore activity if such an enquiry arises.
Osborne’s comment cannot be reconciled with retention of the remittance basis.
But I do rather agree with the Labour party on this one – Osborne clearly thought this one up on the back of a fag packet. It shows.
Richard
Your main argument is based on an exodus of non-domicile residents from the country. As long as Osborne doesn’t pry into their assets his won’t happen.
Thomas
But we know he’s going to keep all existing laws
So he is going to ‘pry’ as you put it (amke legitimate enquiry as I’d put it)
In which case your argument does not work
Richard
Richard. You are wrong to suggest that non-dom wage earners in the City do not “book” their UK earnings off-shore. Frequently they are paid through complicated structures so that their income arises in Jersey or whereever. The decision to stay in London or leave will depend not on whether they pay £25k more a year, but whether they are able to earn a better salary in London than say, in Sydney. Finally, you don’t allow for the fact that many non-doms (particularly US citizens) would be able to off-set their UK tax liability against what they will pay in their home jurisdiction. And whilst we are mentioning the US, lots of countries don’t even have a non-dom regime. In the US once you have to pay taxes, you file a tax return and declare everything! £25k to stay in the UK is a bargain.
[…] Daylight is beginning to break on what George Osborne’s plans for the non-domiciled are. […]