The Pre Budget Report says:
Residence and Domicile
The Government today announces the completion of the residence and domicile review with a package of reforms to make the system fairer while maintaining the UK’s competitiveness.
UK residents who are non-domiciled, who currently pay £4bn in UK tax on UK earnings, will now also have to pay an annual charge of £30,000 to ensure that they contribute in respect of the foreign income and gains which they keep abroad and on which they do not pay UK tax. The charge will apply if they’ve been resident here for more than 7 years. Users of the remittance basis also lose their tax free personal allowances. The measure is targeted to protect competitiveness by ensuring that secondees to the City are not affected (the majority have left the UK by 7 years).
The Government will also amend the current rules to remove flaws and anomalies that allow remittance basis users to sidestep UK tax where it is due on foreign income and gains. It will also tighten up the day counting rules to bring the UK into line with international practice.
The Government will consult on the detail and on a wider range of options, including specifically whether those who have been resident here for more than 10 years should contribute more.
This is absurd:
a) The £30,000 charge is a direct copy from the Tories.
b) Why wait for 7 years?
c) Why not create tax justice. The Chancellor said that a fair tax system required:
competitiveness, simplicity and fairness.
This is none of these.
d) He could have had £4.3 billion to tackle child poverty. He’s chosen not to do so. That’s a travesty.
And, his claim to the House that this new rule would raise £650 million a year is not even backed up by his own data. In 2008/09 he says this will raise £800 million in 2008/09 and £500 million in 2009/10 – in other words he expects this to be avoided.
And all this he says is because:
The Government today announces the completion of the review of the residence and domicile rules that apply to personal taxation. The Government has concluded that the existing arrangements make an important contribution to the UK’s competitiveness, by making the UK an attractive place for skilled people to come to work and do business and where non-domiciles contribute £4 billion of tax on UK earnings.
That’s half what they should pay.
8 Responses to “Domicile – Darling copies the Tories and ducks the issue”
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So the effect of this is that the rich are relatively unaffected (pay £30,000 and thats it: a flea bite for abillionaire) and the rest of us have to pay full tax.
I have always said that I opposed the domicle rules, despite potentially standing to gain from them. Abolishing them, but not for the rich, is simply wrong. The government is taking from relatively ordinary people to give to the rich.
Is there are more regressive tax measure in effect anywhere in the world?
[...] Domicile – Darling copies the Tories and ducks the issue [...]
How is this tax change marketed to the people? Everything I read says: “Rich foreigners who don’t now pay taxes will have to start to pay like everybody else”. This is very much the same kind of talk that there was in Nazi Germany in the 1930s. The Nazis falsely claimed that Jews (all of whom were rich bankers and foreigners according to them, of course) did not fight in WW1 for Germany and in other ways did not contribute.
In the UK now, most non-domiciled people do pay taxes but they are not rich (just like all Jews were not rich).
As far as I can see, this is not about “opting for non-domiciled status” because domicile is based largely on where your father or you were born. Thus, practically every foreigner in the UK is non-domiciled by default. And, changing domicile is difficult according to Inland Revenue documents on the internet and there are no clear rules. If the Inland Revenue will lose £30,000 each time that someone becomes domiciled, it is likely to become more difficult still.
Conclusion: only the rich foreigners will be able to pay up but a lot of poor foreigners (perhaps from Eastern Europe) won’t be able to and will have to leave the country after 7 years. I believe that this is the desired outcome by the goverment. Just the same as when the Nazis imposed laws against the Jews in the 1930s in Germany so that they would choose to emigrate, as they were considered to be undesirable people.
All the rich people do is you create an offshore discretionary irrevocable trust and gift their assets to the offshore trustee.
No more assets in personal name, no more paying GBP 30,000.
Or is that too simplistic?
I know there are some anti-avoidance measures in UK tax law with regard to trusts, but I am not sure exactly what they are though.
Richard, could you explain?
Given that neither side in the debate seem to disagree that the domicile rules do attract these people to Britain, the domicile rules must have some substantial advantage over trusts.
The current rules are very simple: the gifting of offshore assets (non-UK) for UK resident non-domiciled individuals (not deemed domiciled either) to a non-UK resident is free of tax in the UK.
Graham
A non domciled person may set up an offshore trust without problems. A Uk person cannot.
BUT they must really set up a trust. Many offshore trsusts are now fraudulent and many tax haven governments seek to encourage that fraud. See http://www.taxresearch.org.uk/Blog/2006/06/15/jersey-passes-law-allowing-‚Äòsham’-trusts-for-use-by-tax-evaders/
If a non-dom (or UK resident) sets up a trust and has the right to enjoy the income (even if not explicitly) then they are taxable upon it if remitted to the UK or in the future if they do not pay £30,000 as part of their worldwide income.
Let me state my simple view: if I was a tax inspector I would now assume any and every offshore trust a sham unless emphatic evidence were provided to the contrary, and candidly I’m not sure what that could be.
Richard
Thanks for the replies.
So trusts cannot simply substitute for the domicile rules. Good!
The Jersey sham trusts are just amazingly squalid. I only started reading this blog recently and missed it: I am now browsing the archives for more good stuff.