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.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
If you are so correct, please explain how your system would work for someone like my wife who is Guernsey born and bred but has the right to live in the EU through her father?
Or for myself, who was born in the UK but left over 10 years ago and who has no intention of ever returning yet can’t physically remove the option of returning.
Your plan, whilst sounding interesting, is unworkable.
@Richard Murphy
It depends on how you define the target.
The status quo with respect to the residence rules is simply not acceptable so any proposal is a progress.
And by bashing a few high profile tax exiles and demonizing non-domiciled immigrants, you will score more than a few political points on behalf of the TUC, and for the left in general. Well done.
But away from the politics, the proposal really does not add up.
First, the whole system will be extremely difficult, if not impossible to implement and manage. You make the argument that foreign tax authorities and courts will assist the UK in collecting UK tax and in enforcing UK tax judgements. Frankly, there is no basis for this claim, as the exeprience of the IRS shows. The idea that you will just wait for the offenders to present themselves at Heathrow to issue them a tax demand is pretty lame.
Second, it is unlikely to raise any significant revenue, and certainly nothing like the billions of Pounds that you are forecasting.
There is no way ever that we will raise £3 billion from the circa 3,000 non-doms currently filing under the remittance regime. The idea that these individuals, non-UK nationals with limited attachment to this country, will just sit here and write a check for £1 million each is simply ludicrous. Remember, the assets that you are planning to bring into the UK are based offshore to start with, and their only connection to the UK is that they are beneficially owned by a non-domiciled UK resident. The day that this non-domiciled resident leaves the UK, these assets cease to have any connection with the UK and to be taxable here.
Neither will we raise £1 billion from the “Monaco Boys” and their likes. Please look at the US experience: the tax revenues from overseas citizens is insignificant. And that is despite the fact that (i) they do not have a white-list/black-list system and tax everyone irrespecticve of their actual place of residence (with tax credits to avoid most double-taxation), and (ii) American expatriates are on average likely to be significantly better-off than British expats.
If the United States manage to raise very little from a large pool of well-off taxpayers, how likely is it that the UK will be able to raise meaningful amounts from a much smaller pool of (comparatively) less well-off tax contributors?
Not very.
In fact, the only beneficiaries from the US’ policy of worldwide taxation is the army of tax advisors/accountants catering to the various American expatriate communities. Your proposal is likely to achievfe nothing but exactly the same.
@Greg
What this proves is Guernsey is part of the UK
Now there’s a bigger conundrum to resolve – how we reintegrate you when your government collapses financially, which will be before we have a passport tax
Well that is a completely different arguement. I think you’re wrong again, and we’re doing pretty well with zero debt but also a AAA rating should we ever wish to tap the debt markets (which I actually believe we should do).
@Million Dollar Babe
Odd then that in discussions I have taken part in over the last year or two there
has been consensus on two issues. The first is that moves in this direction are likely in the face of continuing tax haven abuse. The second is that such moves would be likely to raise significant revenues. Of course no one knows how much, precisely. But let’s say significant appeared to be the consensus
@Richard Murphy
If these discussions were based on more elaborate computations of the TUC’s/your proposals’ revenue potential, please feel free to share these calculations with your readers.
Having had a brief look through your and the TUC’s archives, I have only seen two estimates: £3 billion for the abolition of the domicile rule, and £1 billion for the introduction of the passport-basis of taxation. Both estimates were provided without any underlying assumptions, and both fly in the face of elementary logic as per my post above.
Is there more to it that you can share with us? Thank you.
@Million Dollar Babe
The data on domicile was published here some time ago and by the TUC
Re the £1 billion – it is an informed estimate
Based on the abuse of those leaving it is almost certainly too low
@Richard Murphy
Ok about the £1 billion. I understand it is a guess-timate.
But I have not seen anything to show how you will extract £3 billion from around 3,000 – 4,000 individuals. If there is something to show how this is derived, I have missed it and would be grateful if you could show me where to find it.
Thank you.
Richard
Re your comment #48, yes of course I get “hot under the collar”. But not for the reasons that you state. Its because you consistently pretend, because that’s all it is, that the Crown Dependencies are part of the UK. We are not. That is a fact. The UK knows that its a fact. The EU knows that its a fact. You know that its a fact. You choose to attack it and ignore it. The UK has accepted it for close to 1000 years. The EU has accepted it since 1972. You might think its wrong and that you’d like to change it. But you can’t. Nor can the UK. Nor can the EU. Not at least without the wish of the people and we know the answer to that.
You also know, categorically, that the Crown Dependencies have made massive strides in eradicating tax evasion over the past decade. You know that they have introduced msssive levels of internationally-accepted standards of anti-money laundering legislation to satisfy the standards of the IMF. They have entered into the agreements as requested by the EU re the EUSTD and the OECD via TEIAs. You don’t think that’s enough, but that’s what we have been asked to do. Nothing less.
As of yet, tax avoidance has not been made illegal. If it ever is, then it is obvious that the currently lawful tax avoidance industries of the Crown Dependencies would be criminalised, and therefore unacceptable overnight. If that ever happens, then the existing legislation will clearly deal with it. But until that changes, don’t put us in the same category as the lowest calibre “tax havens”, who are light years behind us in compliance and the reporting of crime. The difference is black and white, but you cannot or more likely will not recognise that.
The answer for the UK is very simple. Criminalise tax avoidance. Nothing to do with our constitution. The UK can do that any time it likes if it has the desire to do so.
A passport-based taxation system just doesn’t work. People who can afford it can and would give up their UK passport. If you want to collect more tax from nondoms in the UK then the UK could, at any time, change the domicile taxation rules. Nondoms could be deemed domiciled for ALL tax purposes after say 7, 8 or 10 years. Very easy to achieve. Why isn’t it done? Every single UK government since 1988 has evaluated the net benefits of nondoms to the UK economy and reached the same conclusion – to keep the system going because those people have a choice and don’t have to come to the UK at all. Re those jetting in and out, the number of permitted days could easily be reduced to 60. Instead of counting each midnight, every part-day could count so that a 2 day visit counts as 2 days, not 1 day. The availability of accommodation in the UK could be deemed to be a badge of residency. All very easy to achieve, but there simply isn’t an appetite for it.
Changing any of these things would of course affect the Crown Dependencies. But we would adapt as we have always done, and continue to adminster legally-compliant structures within the scope of the new rules. There is huge new wealth being made in the Middle East and Far East, all being created by internationally mobile individuals and families who require legitimate tax and estate planning structures to hold their global wealth.
Personally, I am totally comfortable with every change which the Crown Dependencies have made over the past decade. Automatic exchange of information under the EUSTD doesn’t bother me one iota. The islands have become respectable and responsible international finance centres. If something is illegal then we mustnt do it.
But I draw the line at being attacked for operating lawfully, and I draw the line at misguided attempts to ignore our constitution. Regulations will continue to tighten, and any remaining rogue operators within the islands must be put out of business, but legitimate business, being operated by responsible and well-regulated businesses, should be allowed to continue. If some banks cannot operate as a result, then off they go. If some fiduciaries can’t cope, then they can join them. If this manages to achieve a better diversification of the economy, then great. If it requires new or increased consumption taxes, or higher marginal tax rates, then that’s what has to happen. But trying to close us down or ignoring our constitution for acting lawfully and responsibly is misguided, inappropriate and simply wrong. Yes we probably have further yet to go, but there is undoubtedly a modus operandi which would be totally unacceptable to all except those with a vitriolic and malicious determination to eradicate us.
@Million Dollar Babe
http://www.taxjustice.net/cms/upload/pdf/Domicile_UK_0709_submission.pdf
Knock off £1 billion for revenues raised now
@Rupert
As I have said elsewhere this morning – this is your fantasy
And I’m bored of publishing your mythology
And your defence for not paying tax whilst seeking to undermine the democratic rights of the government of the UK
So please do not bother to repeat them again
@Richard Murphy
Thank you Richard.
There are many things in these computations that appear highly logical, but there may be one important flaw in your numbers.
There were about 110,000 non-doms filing under the remittance basis in 2007, but only circa 3,000 in 2009 (by which I mean they paid the £30,000 levy). This means that the remaining circa 107,000 fall into two categories: (i) they now file like any other domiciled resident, or (ii) they have recently arrived in the UK (less than 7 years) and can still file under the remittance basis without having to pay the levy.
The removal of the domicile rule will not affect the individuals under (i) above. And as I understand it your proposal would still include a “grace” period of a few years (4 or 5 if I understand correctly), so that most of the potential taxpayers under (ii) above would also be unaffected by the new rules.
It follows that the number of non-domiciled taxpayers from who you are planning to extract £3 billion may be higher than 3,000 but not that much. Even if you assume that this sum is to be raised from say 10,000 individuals, this is still an amazing £300,000 per person per annum.
Again, I strongly doubt that these people will simply wait around and sign a check year after year for this amount.
As for the number of non-doms leaving the UK, please see article attached from a financial publication.
http://www.efinancialnews.com/story/2010-06-28/more-non-doms-depart-than-pay
In case you are not able to open, I am copying a small section.
@Million Dollar Babe
You ignore systematic evasion
@Richard Murphy
Unless I missed something, your proposed rules do not deal with evasion. A re-definition of the residence or domicile laws will not change the sad fact that some people criminally evade their tax obligations.
But if this is not the case, how much of the £3 billion will be raised from a crackdown on (domicile-related) tax evasion, and how is this amount calculated? #
Thank you.