Stonehage taxation

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A strange press release arrived in my in-box last night from one of the national papers (and not the usual suspects). The sender thought I might be interested to read it. The release came from someone called Stonehage who say of themselves:

The Stonehage Group provides international families with wealth management and fiduciary services. The Stonehage Group ensures that such governance and legal structures exist as to best meet investment, tax and wealth transfer objectives. The Group also advises families on philanthropic arrangements.

My kind of people then, as you can guess :-). The message of the press release is simple. It says:

Non Doms contribute at least £16 billion to the UK economy

The only slight problem is that this is not true. First of all, this is not actually a "contribution". It's simply the amount that it is claimed non-doms spend in the UK, which is not the same thing. In fact, it's far from it. By this definition all people the world over who buy our exports 'contribute' to the British economy. It does not justify their having preferential tax treatment.

Second, the logic of the calculation is wrong. They say:

The £16.6 billion estimated spend by Non Doms excludes housing and non VAT expenditure, but includes £3.9 billion in UK Income Tax + £2.9 billion in VAT + £308 million in Stamp Duty

But then they calculate the same number another way, saying:

The average proportion of VAT to income tax receipts over the last 7 years has been 57%. There is no reason to believe Non Doms as a population sample pay a significantly different proportion (If anything they pay more). Income tax paying Non Doms therefore paid £2.2bn in VAT in the tax year to April 2006. But only 75% of Non Doms paid income tax , therefore this figure should be grossed up by 1.33 (Non Doms who did not pay income tax would still have paid VAT) which takes us to £2.9 billion. Non Doms therefore spent in excess (because not all goods are subject to VAT) of £16.6 bn excluding housing (£2.9bn x 17.5%) in the UK in the tax year to end April 2006.

This is the point at which if I was a client I'd be looking for another adviser. For example, £2.9 billion multiplied by 17.5% is not £16.6 billion. It's £507.5 million. But what the heck? Who needs a wealth manager who knows the difference between multiplication and division? But since £2.9 billion divided by 17.5% is £16.6 billion we can see where their number actually came from, and that as a result it does not include the income tax paid by these people, which also reveals an inability on their part to do even more basic things, like add up. Worrying for a wealth manager, I'd say.

But, come to that, who needs a wealth manager who understands that the wealthiest pay less than VAT on average than those less well off? The claim made that the wealthiest might pay more VAT proportionately than average is patently absurd. The wealthiest save. The less well off don't. It's a key thing that divides the two groups in case Stonehage had not noticed. There is no VAT on saving. And the wealthiest buy education and health care in large quantities - both VAT exempt - and the less well off don't. So the claim that the least well off pay less in VAT shows a comprehensive lack of understanding of the economics of taxation.

And why should the non-doms who don't pay tax at all have the same level of consumption as those who do, as the calculation suggests? It's an interesting admission of the reality of abuse of the remittance basis of taxation by those who know it would be going on, but there's no economic justification for the logic of the claim at all. But it does suggest that those in the know believe that the figure for tax lost because of the domicile rule is much nearer that I calculate than the estimates the government is using.

Add all these claims together and this number which is the basis of the headline is fatuous in its basis of calculation. So absurd in fact that it is incredible that anyone would put it out as if it were research.

But even if it were true the question has to be, so what? The logic of the paper is that the non-doms benefit the UK and should not be asked to give up their tax benefits, and that if this happens they will leave and we will all lose out. First of all, this is the behaviour of the playground bully who says "if you don't do what I want I'll hurt you". Never appealing. And certainly not when done in a press release.

Second, as the press release notes:

16% of Non Doms worked in the manufacturing sector. The other principal sectors that Non Doms work in include Financial Services (37%) and Oil and Gas (11%).

Interesting, because I'll tell you that in all three sectors its commonplace to have tax equalisation deals in the remuneration package of people seconded between countries so that net pay remains constant. In that case the benefit of the non-dom arrangements may well be, as I have always argued, to provide employers in these sectors with effective subsidies for employing non-UK staff, which is absurd.

Third, I profoundly disagree with the inherent logic of the arguments in this press release which embraces the logic of Leona Helmsley when she said:

Only the little people pay tax

Why should a well of person get exemption from income tax because they pay VAT at the same rate as everyone else? Or because they pay more for their house? What is the logic of that?

There is only one. And it's curiously inherent in the name of the company who put out this release. They're called Stonehage and this is stone age taxation logic - the logic of 'my club's bigger than yours so do what I say'. This is about people believing that their money gives them power and that they are going to use it for themselves. This is about people who do not recognise that they exist in a society. This is about exploitation. And greed.

It's profoundly unattractive.

And it will not succeed.


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