Osbrone’s domcile numbers won’t work

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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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