The Labour Party have issued a press release saying:
Initial costings by the Treasury show that George Osborne's proposal would raise a maximum of £650m, leaving George Osborne at least £2.9 billion short.
They add:
The Treasury's initial estimate, on best information available, is that just 15,000 current non-domicile residents have foreign income in excess of £62,000. Even cautiously assuming both a higher number and an increase in UK tax paid by individuals assuming domicile status produces an estimated maximum of around £650 million which could be raised from this measure.
Two things follow. The first is that the Treasury knows much more, and has done many more calculations on domicile than it apparently admits. It's time they put on record what they know.
The second thing is I have enormous difficulty believing that only 15,000 benefit by more than £25,000 from the domicile rule. My work suggests a figure nearer 30,000. The Treasury's data assumes that only investment income can give rise to the benefit. We know that's wrong. Other income can as well, especially when dressed up as gains or when disguised by trusts.
If they are right £375 million of the sum they suggest would be raised comes from the payment of £25,000 by each of the 15,000 non-doms using Osborne's rule. The rest of the £650 million, or £275 million would come from additional tax paid by the remaining 99,000 non doms they say there are. That's £2,777 each.
I don't buy that at all. That's under £7,000 of income each. That's just not enough to get into the tax accounting for this, to be candid. Only those with serious income bother to use this rule. It's implausible that the savings of most who do so are so small based on my own experience as a tax practitioner.
Of course, I may be wrong. But in that case why can't the Treasury just publish what they know rather than pay party political games with it? This is not a proper use of civil service time.
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Richard,
My experience (of these people as colleagues, not clients) is that there are plenty of non-doms whose status saves them less than a thousand pounds of tax.
And the “tax accounting” isn’t difficult. If you’ve come to the UK to work, it’s not difficult to keep a bank account back home or even set one up with the offshore branch of a High Street bank. Sorry, no expensive advisers needed!
Also a lot of multinationals give tax help as part of their relocation package, so the employees could do this without ever seeing an external tax adviser. They’re below your radar.
The bigger question is where the Treasury has plucked its figures from, given that non-doms don’t have to declare offshore income!
Richard
Richard
I argue there are 7 million non-doms in the UK. So no doubt there are many saving a little.
But I’ll also say I can be sure they’re amongst the near 6.9 million whose status is not delcared on a tax return.
And I note you say your evidence is from friends not clients – so you may not be familiar with their returns.
I agree with you re the Treasury though
Richard
Richard,
You’d be surprised how much knowledge of the non-dom rule there is amongst expat City workers.
Also as I said the ones who are brought in by a multinational on a relocation package are advised by their employer.
Of course none of us really knows the true figures; even the Treasury doesn’t. But it does seem likely that the serious money is concentrated in a few hands.
Richard
Richard
I’m not at all suprisied. I lectured 100s of Australian, NZ and Australian accountants earlier this year and got the impression all were abusing the rule – heavily. They said it was material to them.
In which case the serious money is not restricted to a few hands. That’s not a definition of material.
Barclays was advising many of them. No surprise there.
It’s that sort of ocrruption of our tax system which is the reason for abolishing the rule altogther – and ignoring Osborne’s playing at the edges.
Richard
Richard
I’m sure you’d also join me in welcoming the reduction in offshore business that the abolition of this rule would create.
Richard
Richard,
I wasn’t talking about abuse of the system (I don’t work with people like that), just legitimately claiming non-dom status to keep modest amounts of savings offshore.
Richard
Richard,
This may surprise you, but I agree that it is unfair to tax some people at 40% and others – with the same income – at 10% or less.
I just don’t think it is a practical answer to try to tax everyone at 40%.
The non-doms’ wealth is concentrated in a few hands, and most of them could easily become non-resident. Look at the Sunday Times Rich List – the ones that are UK-domiciled (such as Sir Philip Green) are thought to be non-resident.
This is why I argue for a low, flat tax.
Richard
And as you know, I think you’re wrong on both counts – and always will be!
Richard
And today the papers report that the Treasury have admitted that they made up the numbers used in Labour’s rebuttal.
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The treasury’s calculations are slightly different from that reported earlier – see http://www.hm-treasury.gov.uk/media/6/4/foi_costingtemplate031007.pdf for the detail.
In short, they have 25,000 non-doms with no UK taxable income. It is from that population that they assume 15,000 will pay the £25,000. This gives £375m.
They then have a remaining 100,000 non-doms, who they assume have an average of £10,000 pa unremitted income. Taxing that at 30% gives a further £300m.
Current tax lost is £25m – hence the reported total of £650m.
Leakage, e.g. going abroad, etc., loses £150m from that.
It will be interesting, if the government decide to do anything, whether these treasury numbers change.
[…] The £650 million number is implausible. I’ve already explained why. […]
The non ‘domicile rules will impact a forgotten group, I believe, the retirees who had protection from residency under the Nato visiting forces treaty., but lose this when they retire in the UK , normally with a UK wife as well. Q what will be the treaty impact for US retiree income, which removes even the remitted income rule…permitting the retiree income to be tax free if tax is paid in the USA at source? Q: Worldwide income rules will apply for the US and the UK taxes, but offer no real protection from dual taxation? Q: rates are disallowed in US taxation, and I suspect that the non com levies will be as well…won’t this be a difficult situation that the non com will have more UK tax levied than they might receive from their pension…? Q: I wonder about when the seven year rule, when it will actually start, as some retirees will have been here for seven years already, and the rule might be retroactive….a common thing under labor law?
A hard and fast rule by the UK tax authorities could apply 25-30,000 GBP to the worldwide income from the UK and the USA. This might result in all of the income in the UK and the USA resulting in 100% tax if they live in the UK. I am mindful that the assets could be more, but the subject is a flat tax regardless of source or amount. If the poor UK resident, wishes to forgo the flat assessment, then he shall pay tax on world wide income…while the US will still ask for full payment on the US income, plus any UK income (e.g two worldwide tax authorities, without a really fair dual taxation treaty).
So what will be the answer? It will be to leave the UK, seek a tax haven for retirees, and definitely not come back to the UK, unless for a limited time each year…picking a country that will permit the US pension to be paid gross without double taxation. The assets that might remain in the UK like a house will have an interesting result, because they could be rented and tax paid as a non resident, non domiciled, non person in the UK….making sure that you never came back for more than 90 days, otherwise you would become a non dom, and whacked with a confiscatory levy.
Remember the money that you paid for health cover, or your wife paid for national health….be sure that your sickness is less than 90 days per year, otherwise your hospital stay will be more than it costs in the USA.
This whole subject and the approach smacks of the poll tax in Scotland before what resulted in non application in England. It is experimentation with political whim, and dam the fairness or consequence.
Like the burmese monks, probably the retirees will not riot , but walk with their empty bowls down the street. Walking might be the only way, as they would not have enough for a car, a train, just a bicycle. In the past few years, there has been an eight fold increase we are told in the bankruptcy of pensioners….and it could increase with these new policies. The only problem will be where to file, UK or USA?
Robert
Please see my answer here http://www.taxresearch.org.uk/Blog/2007/10/10/the-garbage-some-accountants-utter/#comment-213496
Richard