Take this from George Bull, head of tax at accountants and business advisors Baker Tilly in the Guardian this morning when discussing the new non-dom rule:
Labour's flat rate £30,000 seems to apply to non-domiciles who have been resident in the UK for seven years. This means that long-term foreign workers - doctors and nurses as well as business expatriates - could find themselves asked to pay up in only two years time.
What a load of rubbish.. Of course they won't be paying up. They'll be paying tax on their world wide income - as everyone who lives here should. That, very obviously will be cheaper option for the vast majority of them.
Does anyone actually pay George Bull for tax advice? I sincerely hope not if this is the best he can do.
And then there's this from Carolyn Steppler, tax director at KPMG, who told the FT that
the new rules would create more headaches for non-domiciled individuals:, Far from simplifying things, these new proposals appear very complex and will require a number of computations to see which basis of taxation an individual wants to claim under.
Do they honestly think we're stupid, or that this wins sympathy? My own profession never ceases to amaze me, especially at its upper echelons.
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The accountant who criticizes in gross terms might write well, but will he always be fair and reasonable? Let me give an example which might change the adamant, make them question their strength of comment.
A US citizen married a UK woman, resided under the Nato contract for visiting forces, and happily retired in the UK. That man, military or civilian, now pays worldwide income tax in the USA, including tax on his pension in the USA, but fortunately avoids, by treaty, tax on it in the UK. Other investments in the USA are all taxed.
Now, this couple of limited means collect about 5,000 pounds in the UK, exceed the 1000 GBP limit, and will have a choice…pay two world wide income taxes to the UK and to the USA…or pay the new levy. This couple, hardly part of the “super rich” will now have really no choice,but to pay two worldwide tax bills, and do so without any real, I mean real, offset from dual taxation. They face real quandries: stay in the UK where they have healthcare, or return to the US where they have none…even if they have paid for UK national health for many years. Leave the UK to find a country that taxes the pension once at source. Stay in the UK, and give their US income to children to reduce their UK income, and hope that the children will support them. Finally , choose UK or USA to file bankruptcy, joining the eight fold increase of bankruptcy for pensioners in the past five years.
My suggestion to them would be to stay in the UK, but divorce to separate the domicile problem between the spouses, then create a Wyoming LLC for their assets in the USA which is non taxable, and finally borrow on their house to the hilt, because the Bank of England will give them a Northern Rock mortgage protection….BUT this is as the writer says. is ..”silly.” “(does he think were stupid?)
Do you wish me to answer the question because I have too many old clients who will be devastated in their meagre retiree income by the new rules that are targeted at the super rich, but catch pensioners drastically. The only answer will be a series of devious divorces and complex tax planning schemes to be probably overturned in five years and made retroactive. Even the subject of how many years that they might have resided in the UK is an unanswered “silly” subject.
Robert
No double tax relief? Why not?
Please prove it. I’m not saying you’re wrong – I have never looked at this situation – but if it’s really true (and my instinct is against that) then this is a case to take to HM Treasury during the comsultation period.
And if it is true, then I’ll support the case. But I need evidence.
Richard
simply look at the 1116 Tax form which reduces the tax effect by splitting the income type, adjusting for gross to partial income percentage, and disallows for the UK wife if she is a non resident alien.The form instructions are 18 pages long, show examples of what is in and out,… I suggest give up, and buy three tax programs from Turbotax for individuals, estates, and business.
Reference: http://www.irs.gov/pub/irs-pdf/f1116.pdf
This agreement seems fairly comprehensive (haven’t read all of it though):
http://www.opsi.gov.uk/si/si2002/20022848.htm
Article 17 of this agreement would definately seem to cover the pension. As for the other assets, surely if this couple are so hard up they must be minimal so could be given away, or relocated, to allow the pension to be tax-free.
However in this case it seems unrelated anyway. If there is a problem, it is with the double tax arrangement and is just being worked round by being non-dom.
The problem outlined in the original article is that these (supposed) doctors and nurses (and more likely the super-rich) are complaining about paying tax once not twice!
What a load of rubbish.. Of course they won’t be paying up. They’ll be paying tax on their world wide income – as everyone who lives here should. That, very obviously will be cheaper option for the vast majority of them.
Yes, but the question is, when changing ones domicile from non-UK to UK, does that mean that taxation will be applied retroactively on any non-UK source income made during the time of not being non-domiciled?
The original concept of the conservatives was to have a flat tax imposed on the non domiciled persons of great wealth who avoided taxation on their world wide wealth by living in the UK…who had previously welcomed them to Britain to benefit from their investment, their house buying, and their typical high budget living expenses. This could be shown to be beneficial as it meant that every Pound paid might develop three pounds of local business. Often this is the justification for the government to invest in remote areas, support remote or inner city investment, because the impact is much greater than the first capital spending.
However, we are very jealous and irritated by people avoiding taxation when we are paying tax, so we support our politicians to go and get the “fat cats. the non doms, and the hedge fund managers….” The success of the conservatives obviously rattled the team of Brown/Darling, so they tried to do better with a bigger amount of 30K GBP…plus a more pervasive treatment with 7 of ten years, etc.
I read that the total amount calculated will be 800 million to be collected from the treasury , with about 4000 non doms paying , or delighted to pay 30K….which is 120,000,000 dollars from this group. Nice, but what about the 800 Million total? If true, then the diabolical purpose is to extract an amount of 680Million from those who will have great difficulty complaining, and will not even possibly know about the impact of the law in April 2007….it will be so new, and little understood. For Example, the 680 Million will be paid by the following persons:
1. A US retired couple with three UK children, who live in oxfordshire, have a french holiday home that they have developed and used US capital for improvements, and good investments in the USA to protect themselves from high medical expenses. This couple, living here in the UK for 10 years, will have no choice, but to pay tax on their US, French, and any other offshore investments…plus their full US taxation. Two worldwide regimes will smother them. No deductions for the French income, none for the US income, and none for the offshore income. They have a US passport with the UK resident stamp, so have decided it necessary to avoid UK tax, and leave the UK, removing their children, taking their pensions, Possibly putting their house into a corporation, owned by a LLC in Wyoming (low state tax), and canceling their council tax in their name, plus they must have their passports stolen, and then get new ones without the UK stamp of residence. They will return as tourists for six months, and with the above plan can live in the UK for a reasonable amount of time, enjoy their french property, and stay with their present tax regime. They may lose little, but I wonder about the smart UK politicans who caused this upset? They got rid of the problem people, and now leave more space for immigration….?
2. The UK husband and the French Wife have lived here for 15 years teaching at Oxford University, raising two children who have also married french spouses. This unfortunate mixed marriage in a Common Market, means that they have consistent non domicile tax problems now in the UK. The family house in France is a working farm, taxed reasonably by the French,but soon to be taxed by the UK. Will the French stand for this, or will they start taxing the UK residents in France on their UK property. A non dom in France could be the same pariah that exists now in the UK. It will be presented as only fair for two tax regimes to tax world wide assets, income, and capital gains. There is a possibility that the 15 years of non dom will benefit the inheritance tax because in 17 to 20 years the non dom wife will be treated equally with the 600/300 GBP rule, rather than the present 55 GBP rule, but this could be eaten up by the worldwide taxation in the interim It would appear that all children, and I suggest the parents, should divorce and claim mistresses (the word for a male miistress is a mistery sp) to avoid non dom UK tax on their French spouses…and the family farm should now become a French corporation with a Gibraltar corporate ownership to avoid UK taxes. The french should also consider Andorra, Monaco, or Liechtenstein…who are still remain on the unco-operative tax havens list for 2007. In essence, the common market is no longer separate from the UK, and will have to start a Brussels common tax, a federal tax (US) over and above the British tax, to bring stability into the system. Was this what the Conservative and the Labour government intended….and will we have a referendum on the subject?
Robert
Your argument on revenue raised entirely misses the point that those who do not pay the £30,000 will now pay tax on their world wide income.
Much as your other arguments seem to miss the point as well.
This debate is now closed.
Richard
Tax Research LLP:
Personally, as I asked in my previous question (with a few typos, sorry about that), I am somewhat curious as to what happens to those who will opt to pay tax on their world wide income, will they have to pay tax retroactively on non-UK income from the past?
Personally, I am non-domiciled, and I have no problem paying tax on my worldwide income (since I don’t have money to pay for a £30K a year poll tax), fair enough to be treated on the same playing field as everyone else.
What I do have a problem with is paying tax retroactively on income I assumed would never be tax liable.
Wille
No one knows yet.
The rules will be might complicated though – I’ll guarantee!
Richard