As if one new TUC tax report is not enough for a day, over the weekend the TUC issued a second report by me, this one calling for abolition of the domicile rule in the UK and for radical reform of the UK’s tax residence rules. As the report notes:
The UK needs new tax residency laws.
The existing laws of tax residence are now so complex and reliant on conflicting legal decisions that few, if anyone, can claim to fully understand them — including HM Revenue & Customs. As a result tax avoidance is rife — especially amongst an elite who can afford to commute in and out of the UK from places like Monaco but pay little or no tax in the UK.
In addition, the rules on residency include the domicile rule, which has made the UK a tax haven for foreign oligarchs, allowed untold tax abuse and increased division in our society.
Uncertainty and abuse aren’t the basis for tax justice. Tax justice would deliver two things. The first is certainty for honest working people coming to and leaving the UK to earn their living. The second is a tax system that ensures all who enjoy what the UK has to offer contribute to its well-being according to their means.
It is for these reasons that the TUC is proposing radical revision to the UK’s tax residence rules which would, amongst many benefits, sweep away the domicile rule for good.
Our proposals are simple, effective and fair. They will raise money and stop abuse. First we propose that everyone who has a UK passport should be tax resident in the UK, automatically, wherever they live in the world. That means they would always have liability to pay tax in the UK on their worldwide income, gains and wealth, just as all US citizens do in the USA.
However, because we also recognise that tax needs to be simple and pragmatic we also suggest an important exception, which is that those UK passport holders living in a ‘white list’ of approved countries would pay no more tax in the UK as a result. The tax they paid in that other country in which they lived and worked would, in these cases, be deemed to settle their UK tax bill. As a result it is those who flee the UK to live in tax havens that this measure would target. We think more than £1 billion of extra tax would be raised as a result, and untold abuse and time wasted by HM Revenue & Customs brought to an end.
We also propose new rules for those coming to the UK from abroad. We welcome the contribution these people bring to the UK. We also recognise many only come for short periods, so for up to four years we suggest anyone taking up residency in the UK should only pay tax on their UK income and that other income they bring to the UK from overseas. But once this period of grace is over we argue that all who come to the UK to live should be subject to exactly the same tax rules as those who have always lived here. So, after four years of temporary residence in the UK we argue that anyone choosing to stay for longer should pay full UK tax on their worldwide income, gains and wealth.
Our rules ensure that is the case, and also ensure that those who stay in the UK for relatively short periods but have extensive connections with it none the less — such as keeping a home and their family here — should also be tax resident in this country.
These changes, matched with the ending of the domicile rule, would , we suggest raise up to £3 billion of tax a year and, as importantly, deliver the fairness and certainty the UK needs if it is to play a full part in a world economy where people are mobile.
The rules proposed are as straightforward as can be suggested in a complex situation. Of course there are winners, and losers. The winners are those going abroad to work in places with acceptable tax systems. Those going to tax havens, on the other hand, will find they are still paying UK tax — and rightly so. They have the right to return to the UK at any moment and claim all the services that we as a state have to offer. That is precisely why they must contribute here if they do not anywhere else.
This is a proposal will deliver significant tax simplicity, fairness between those born and not born in the UK (which is very important), enhanced tax revenue at the time that we needed, and certainty where the law has not provided it to date. If the tax profession objects one has to wonder what their objectives are.
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Wouldn’t the tax havens just offer a new passport as an incentive to individuals wishing to move to them? A Guernsey passport is no different to a British one.
Hi Richard,
How does “everyone who has a UK passport should be tax resident in the UK, automatically, wherever they live in the world” square with your definition “Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.”?
@Greg
The arrangements for the CDs would be that those not entitled to EU residence would be considered to have non-UK passports
The rest would be UK resident
As evidenced by your passport, of course
@Noel Scoper
Easily. The facilitation of transactions that do not really take place in a location where they are recorded cannot be considered an act consistent with tax compliance.
In addition, if the legal obligation to declare tax in the circumstances is created in United Kingdom, compliance with that requirement would, by definition, be an act of tax compliance. At all levels your argument fails.
@ Richard, maybe i’m mis-understanding but what you are suggesting would make me UK resident. Yet why should I pay UK tax? I left the UK over 10 years ago, and never plan to go back.
@Greg
Renounce your UK passport then
@ Richard, I have. I have a Guernsey passport.
The TUC appear to be taking a leaf out of the book of those communistic, capitalist-hating stalinists in, err, the USA!
And let’s not get hysterical about what this would mean. There would still be double tax relief for those paying tax elsewhere.
@Richard Murphy
What about dual nationals?
Will the NHS pay for treatment for UK nationals anywhere in the world?
Who will draw up the white-list?
What if income tax rates are higher, but CGT rates are lower in the home country? How is the calculation to be done? (You seem to package as an all-or-none solution rather than just adding such items to a return – I assume this means the end to deducting tax under joint tax agreements?)
Can someone pay into an ISA, pension, etc while abroad?
Can someone claim tax losses back from the UK?
If someone wants to opt out, will the UK grant a passport for travel but not residency? Someone cannot become stateless.
Is there anywhere you can flesh this out in more detail? Seems a little more complicated than first envisioned.
@Greg
And if it’s denies you the right to reside in the EU then you have no problem
@James from Durham
A little plagiarism goes a long way!
Of course, I would prefer to call it a precedent
@Noel Scoper
Dual nationals can always forsake their second passport, or their UK one, if they wish
Of course the NHS will not pay for treatment of UK nationals anywhere else in the world. Why should they?
HMRC will prepare the white list
The higher rate of tax will be paid.
If a person is tax resident in the UK then of course they can claim all UK tax allowances, but I would of course restrict these for those earning over £100,000 a year.
Ditto, re losses, but of course they would have to prove that they were incurred in the course of a trade and that may be problematic.
If someone wishes what doubt of course they may — they just have to find another state. If they can’t, then they are in. End of story
Next problem?
…and The People’s Republic of China.
Any other countries operate worldwide taxation?
Nope, that’s all. Seems that the people are owned by the state 🙂
Linking tax obligations to passports (and I assume you mean the right to hold a UK passport, rather than actually holding one at any time) uniquely does not work for the UK because it has something that no other country has.
A Commonwealth.
Commonwealth citizens with at least one parent or grandparent (and there are some complications with grandparents) are automatically entitled by operation of UK law to be UK citizens and therefore to hold a British passport. They are British even if they have never set foot in the UK and even if they don’t know of their entitlements to dual citizenship.
There are millions to whom this applies. Many are proud of the link with the past so would not want to renounce as you have suggested to Greg.
How would HMRC collect on these people, many of whom have never been to the UK except maybe as tourists? It just simply would not have jurisdiction. Whether the country is white list or whether the individual renounces would be irrelevant. I can’t see the ATO or the Australian courts assisting HMRC in collecting tax from Australian residents from Australian source income.
Dont forget, Julia Gillard is Welsh born, and as far as I know, she has not renounced her UK citizenship. The chances of her paying her PM’s salary as UK tax are pretty much close to zero.
@Noel Scoper
This implies no such thing and it is absurd to suggest so. The relationship between the state and the citizen/subject is a symbiotic contract of parties whose mutual well-being is dependent upon the effectiveness of the relationship
Ownership does not come into it and you must know that
@Adrian
you entirely missed the point – Australia will, inevitably, be on the white list of states, as would most members of the Commonwealth (but not all)
And the passport that a member of the Commonwealth can apply for does not give EU residence rights and is not, therefore, a full British passport – and it is only the latter to which this would apply
But it doesn’t deny me the right to live in the EU. I was born in the UK, so under EU law I have a right to live and work anywhere within the EU. This right also applies to Guernsey born people who have at least one parent who was born in the UK.
So your plan doesn’t work. Surely you don’t believe I should be paying UK tax, when the most work I’ve ever done in the UK was over 10 years ago! Plus my wife was born and bred in Guernsey, has never worked in the UK yet under your plan she would be liable to pay tax in the UK because she has the right to live anywhere in the EU.
They have the right to return to the UK at any moment and claim all the services that we as a state have to offer.
And if soem one does move to an offshore financial centre and then move back to the UK in the same year to use those services, they will already pay UK taxes on their earnings that year.
If say you have been working as na expat for 6 years, never returning to the UK, why should you pay taxes on services you are not using?
If I return to the UK then and start using the services I will be paying taxes on my return.
So why should you pay taxes for services you cannot use while working abroad?
Just out of interest how many other countries in the world apart from the US tax their nationals in the same way, doesn’t that tell you something?
“Australia will, inevitably, be on the white list of states, as would most members of the Commonwealth (but not all)”
And who decides this list — Australia or UK? And what if Australia is one day not on that list (as a result of changes to its own tax laws over which the UK has no control)?
“And the passport that a member of the Commonwealth can apply for does not give EU residence rights and is not, therefore, a full British passport – and it is only the latter to which this would apply”
Not sure that is right. Middle daughter was born in Australia (2001) (Australian dad, British mum) and has had both passports from before we moved back to the UK. Her British passport doesn’t have any restriction on her right to live in the EU.
If she keeps both passports but lives in Australia one day, there would be no case for forcing her to renounce her dual heritage (given it was not something she voluntarily chose), nor any case for the UK taxing her on non-UK income. And I don’t know how HMRC would even recover such tax even if it were UK law. I doubt the Australian courts would assist given they will be on the side of the right of the ATO to tax.
There are millions just like her — nothing unusual about it.
@Greg
looks like you would owe UK tax then!
and why not? we are the state that provides you with your protection
@Creg
tax is not a payment for services
When will you get that?
@Adrian
I can tell you that an Australian passport does not give the right of abode in the UK
if she has a full UK passport but will live in Australia I have no doubt whatsoever that under the arrangement I suggest she will always be on a white list and never therefore have a UK tax liability if she pays all the tax that is going in Australia.
But if she chooses to live in a tax haven – then if Australia does not claim the tax I am quite sure that the UK will. And if both do she will have to make a decision as to which they she wishes to pay tax to.
there are many worse problems to have a life – and candidly I see this as no objection to the proposal. Why should it be?
I am not sure what difference the ‘white list’ will make, nor whether you or anyone else will be in a position to know indefinitely whether one country or another is on or off the list.
If my daughter wants to live in a tax haven, and cuts off all ties to the UK other than to hold the right to a passport, how physically will the UK government enforce payment given it is unlikely to have the cooperation of the host nation? The Australian courts wouldn’t help. The tax havens courts won’t help. Whether or not she has paid her Australian tax will be none of the UK’s business. If HMRC asks, she can tell them to go jump. She is not their property and there isnt much they can do.
It seems like a fairly unenforceable rule on the grounds of jurisdiction alone. Maybe extraterrioriality worked in Shanghai c. 1850 but I don’t think it would fly these days.
As an aside FYI, I think there are circumstances where your Australian passport does give right to UK abode. As I recall the rule, if you are relying on a grandparent rather than parents, there is a distinction depending on whether it is a grandparent on your father’s side v on your mother’s side (former entitles you to the passport, the other only to 4 years residency, which can be converted into permanent residency, with no right or obligation per se to take citizenship or a passport). Oldy-worldy sexist distinction between father and mother that still sits there.
Of course, if you take up residency, you should pay tax as a resident.
“tax is not a payment for services
When will you get that?”
Whebn you stop using it in your arguement to tax people! you stated as your reason to tax as ”
They have the right to return to the UK at any moment and claim all the services that we as a state have to offer”
The biggest reason for direct taxes seems to be to punish the productive and reward the lazy.
@Adrian
Ah – so you rely on the promotion of tax evasion to undermine a tax law
How honest of you to say so
Hahaha, one might point to WW2 and wonder where the protection was then!
It would also be a bit tough on my wife who has never used a UK service in her life and never done a day’s work in the UK!
I think you’ll have to admit defeat on this one.
Wouldn’t it just be simpler to abolish the dom / non-dom distinction and levy UK tax on all worldwide income if you are resident in the UK? That’s the way most EU and Commonwealth countries work. Wouldnt it make more sense to harmonise with them?
What tax evasion?
If my daughter lives outside the UK (whether in a tax haven or otherwise), earns no UK source income, what tax is she evading?
She would and should be no more liable to pay UK tax than you are liable to pay Sri Lankan tax. Or Argentinian tax. Or Fijian tax.
@Creg
only if you have the viewpoint of the tax avoider.
I would suggest you watch Channel 4 dispatches from tonight
@Vercingetorix
no, because that would not catch those who were deliberately putting themselves into tax exile to abuse the UK
@Adrian
the tax evasion would be avoiding the legal demand from the United Kingdom which would have been endorsed by the Parliament which would be binding on all its citizens
Of course you can go round tax evading – but do expect to be caught, especially if you call on the services of the country that issues you with its passport. It is not a one-way relationship
@Greg
I can assure you this idea has been put out precisely because I think it has significant prospect of being endorsed at some time in the not too distant future
Richard
I was born and educated in Guernsey and have lived here for all bar 2 years of my working life (and I’m nearly 50). My father’s side of the family have lived in Guernsey since 1740 (originally from England) although my father was born in England because his father (from Guernsey) taught in England for 5 years. That fact alone entitles me to live and work anywhere in the EU. My mother’s side of the family has lived in Guernsey since aroud 1550 (originally from Brittany).
I have never lived in the UK. I have never used any public services in the UK except for public transport which I have paid for in the same way as any other visitor.
Why on earth should I pay UK taxes? I receive no benefit from UK taxes. I do not have a vote in the UK, nor do I want a vote in the UK as the UK does not legislate in Guernsey. “No taxation without representation”.
Greg
You are actually wrong. You have not renounced your UK passport in favour of a Guernsey passport. The two passports are identical unless you don’t have any UK parentage or grandparentage. The Channel Islands are part of the UK Common Travel Area foor immigration and nationality purposes under the British Nationality Act 1972. Your passport only states Guernsey on the front as it was issued by the Guernsey passport office on behalf of the Lieutenant-Governor’s Office on behalf of the British Government, of which we are subjects. If you were a first-time holidaymaker to Guernsey and lost your passport, you could apply to the Guernsey passport office for a replacement passport and you would be issued with exactly the passport that you and I have got!
The vital part is on your picture page where it states “Nationality: British”.
Richard suggests that you should renounce your UK passport but you can’t, because under the constitution that’s all you are entitled to. But Richard simply doesn’t accept or recognise our constitution as being valid.
@Rupert
That’s because you haven’t got a constitution – as it says on your passport
Richard,
You are welcome to advocate the removal of the (non-)domicile rule, but please be honest about the basis for doing so: it has nothing to do with the economics (i.e. tax revenues) and everything to do with politics.
After all, everyone likes to bash an immigrant and the TUC is no different. It is just good politics.
And I am sure that everyone will see the rationale in taxing these (mostly American, sometimes European) foreigners who come to these shores bringing their extensive education (received predominantly in the United States, and which cost the UK taxpayer nothing), pay full local taxes on local income, but send their kids to private schools so that local children have the full benefit of state schools, and often receive medical care in their home country so as to leave local citizens with full access to the local socialized medical infrastructure.
How dare they be so selfish, these immigrants?
More seriously, your numbers regarding the revenue generating potential of abandoning the (non-)domicile rule have never added up.
There are currently only about 3,000 (maybe 4,000) non-doms filing under the remittance basis. All other non-doms already pay taxes like ordinary domiciles. So the full £3 billion in additional revenues will havve to come from these 3,000 individuals, i.e. £1 million per non-dom.
Do you seriously want us to believe that these 3,000 non-doms, who are by definition foreign-born, non-UK nationals with no or limited connection to this country will simply sit here and write a check of $1.6 million EVERY YEAR to the UK treasury?
Sorry but you will have to do better than that.
I think you miss the point with respect.
If the UK passes a law on citizens who are citizens by operation of law (ie by birth or descent, not by choice) but who live in the protection of another state and who may also be citizens of that other state, the law has no effect. Not worth the ink it is printed on. Waste of time.
It’s called ‘extra-territoriality’. Has been tried through history, notably by European powers in China in the 19th C. Doesnt go down well with the locals and they understandably tend to be reluctant to assist with the enforcement.
That’s the problem with this proposal – getting other countries to help with the enforcement when they prefer the taxes were paid to them and not to Blighty. Why should they?
Having said that, I do agree that the dom rule is plain nuts, which explains why so few other countries (if any?) have adopted it. It should be based on residency only. And I agree the rules on this need tightening up – very loose, vague and open to abuse. But if we focus on land and consumption tax it makes it easier. If a rich person of whatever passport wants to come here (as rich people like doing) for 9 days or 90 days or 900 days, for business or pleasure, or Monday to Thursday, he pays his way. Simple.
@Million Dollar Babe
It’s OK – if they go the profit will still be amde here – by people who are resident
We’ll get the tax either way
@Adrian
History old chap
Tax cooperation is now the order of the day
And remember – these people have a passport and will want to come here
It will be a touch expensive to get in if they’ve forgotten to file their tax returns
I really do not understand your reply…..
what profit?
@Richard Murphy
That is nonsense Richard.
In the UK, HMRC is providing no assistance whatsoever to the IRS to collect taxes from the several hundred thousands US taxpayers who live here.
What makes you believe that the US (or one of the countries off your “white-list) would be any more co-operative than the UK?
Just because the US does something, doesn’t mean that it’s necessarily a good idea that we should also implement in the UK. The US is practically unique in taxing its citizens abroad, and most analyses of this scheme conclude that it is, ultimately, significantly damaging to national interests.
From http://www.aca.ch/levelpl.pdf, “The worldwide tax system currently employed by the United States is the world’s most unusual self-destructive economic weapon. The damage this export tax on U.S. citizens causes is immense and grows greater each year.” The President’s Export Council consistently recommends its complete repeal.
Are you saying they must physically have the passport to be liable for the tax? Or simply be eligible for the passport?
The point is: there will be people eligible for the passport who do not want or need a UK passport, may not even know they are eligible. But they are just as much UK citizens as you are. The UK does not keep a register of such people. They don’t surface unless they actually apply for the passport.
As for the ‘history old chap’, I think you underestimate the unliklihood of other countries wanting to enforce UK tax law at the expense of their own tax base. You are suggesting something way beyond tax cooperation – I don’t think there is any country that accepts extraterroriality any more, at least not in terms of tax. It has the ring of ‘colonial master’ about it.
I would say if you propose giving people a 4 or 5 year break on the way into the UK as other countries do ( japan , NZ , OZ ) the fair thing to do is give a 4 or 5 year window on the way out so to leave the UK you are on the hook for 4 or 5 years as your tax affairs roll off , this I think fixes the issues of people outside the uk for 10 years plus who have made a clean and clear break from the Uk and those who opportunistically jump ship when they see a big capital gain about to be realized Japan uses a 5 years in the last 10 rule , I don’t think anybody has an issue with the ending of non dom status but adopting the US style system is not a smart move … especially as the ability to vote in the UK is gone after 10 years absence … then you have the issue of pensions and rights to welfare etc etc
@Richard Murphy
But if they don’t live in the UK and don’t use our services why should we care? I am a bit confused as to how we in the UK are being ‘abused’. Are we in the UK being anymore abused than other EU countries? After all there are plenty of Germans, Spaniards, Italians etc living in Monaco, Siwtzerland etc. I’d just like to understand in more detail why you think we need to follow such a different route to the rest of the EU.
Well, as many posters have pointed out, it just doesn’t work!
Richard
You well know of the constitutional relationship between Guernsey and the UK and the British crown. You simply choose to ignore it. Even the EU recognises it. Clearly that’s not good enough for you.
@Rupert
I note that you and many others are getting very hot under the collar, and I note also that many of you come from tax havens. There is no coincidence in that.
Let me be clear. This proposal will help the vast majority of people whom are coming to the UK, and who are leaving the UK. It will make it harder, as one commentator suggests appropriate, to leave the UK, and that should be true.
The people who move to a state which runs a proper, organised, and appropriate tax system where the needs of the population are met from the resources raised by the state, rather than being raided from the treasuries of other states, there will be no threat from this new system. That is exactly appropriate. There will be no double taxation – ever – under this system either.
But this system does tackle a significant, very wealthy, and abusive population who seek to use tax havens to undermine the democratic mandate of the UK and other governments. It does so by extending the reach of UK taxation into places that refused to charge tax appropriately, exempting on the way those states such as very poor African countries, which do not charge tax, or do not collect it, because of insufficient resources and where it is highly unlikely that tax exiles will hang out.
The approach is an anti-avoidance measure. I have little doubt that it will gain in popularity over the coming years will, eventually, become a benchmark for international acceptability in the face of the abuse of those continuing tax havens that seek to harbour funds of those who claim to be beyond the law.
Of course it is a challenge to your accepted form of abuse. It is meant to be. But that does not mean it will not work. It will make tax co-operation between major state is incredibly easy. It will make it easier to determine whether a person is resident. The person with two passports will have to choose one. I am one of them! So be it. But it will work for one, very good, reason. Whilst people who live in major states might never travel, and the question of whether they have a UK passport will in that case be determined as a matter of fact, not one of entitlement, legal in tax havens, and especially the mobile rich, have a habit of travelling extensively. Of course they can avoid using Heathrow. And of course they can avoid coming to London. But unless they do they will have to pay tax year because on arrival the revenue will be able to question them on the failure to submit tax returns and pay what is due. It isn’t that right and proper?
Richard, it’s pretty obvious why you’ve received so many comments from residents of crown dependencies because we know that your plan won’t work!
@Greg
Wrong
What that means is I am bang on target – and you know it