I have long argued for what I call a 'passport tax'. Yesterday the Times said in its editorial on tax avoidance that the government has to ask:
is it right that a select group of people enjoy the rights and privileges associated with a British passport without sharing in its responsibilities? Americans must pay tax on their worldwide incomes wherever they live. Verey small numbers give up their US citizenship for tax reasons. Surely most British passport holders, however wealthy, value their nationality as dearly?
I have long thought this. In October 2010 the TUC supported my aproach in a report I wrote for them in which I said:
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.
And for the sake of doubt I wrote elsewhere about the 'white list' saying:
First, note no one living in Europe would be subject to it as all would be on the white list. I suspect that would have to go without saying.
Second, I think there would be a “white list” of states to which it would not apply. Like the US and other major states such as Japan, Australia, Canada and so on where the tax system is considered robust, information exchange is good and double tax treaties work.
Thirdly I'd propose it applied to no one earning less than the income tax higher rate tax band — so taking all working voluntarily overseas, for aid agencies and the like right out of the charge. This replicates a US provision.
After that you're left with the cases you want to tackle: those living in states with no tax agreement with the UK, with UK citizenship and wanting to retain it and with substantial potential tax being avoided by their residence abroad — probably in a tax haven.
Yes they'll squeal and the Crown Dependencies will say this is unjust as they're not UK citizens — which I'd agree for those with genuine claim to be local (which is rigorously defined, remember in the case of Jersey and Guernsey at least). But the reality is that this will massively clamp down on tax abusers.
And who better to pick up the pain right now?
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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.
Richard, two observations:
1. If everyone who has a UK passport is tax resident in the UK, how would the principle of “no taxation without representation” apply? (thinking specifically of my mother here, who has lived in France the last 23 years, still pays UK tax, but is not allowed a vote in French presidential/parliamentary elections because she’s not a French citizen, and is also denied a vote in UK parliamentary elections)
2. You mention Crown dependencies: the majority of people here in Jersey, even if they are UK citizens (and a significant number are not), earn their income in-island from tourism, agriculture, retail and other service businesses. IIRC offshore comprises only about 25% of the workforce. Short of removing crown dependency status (which might be an option, but would be messy), the correct place to pay tax for most residents is still Jersey rather than the UK.
That said, I think there may be an alternative answer to the domicile problem, which would be to persuade the Privy Council to strike down Jersey’s 1.1.k residency qualification – this specifically targets those wealthy enough to use the island for purposes of tax exile. But how this would work in Guernsey or the Isle of Man (where rules are different) I do not know.
1) Extend the vote to those not able to vote elsewhere – have an ‘overseas’ constituency
2) Jersey would have to operate a ‘proper’ tax system to avoid its UK citizens who had once been resident in the UK being taxable in Jersey
I never imagine the tax applying to those with the passport who have never been resident in the UK
And note many in Jersey in tourism etc would not have sufficient income to fall under the arrangement either.
This is profoundly fair
Thank you – answer 1 was what I hoped.
I don’t believe that your answer to 2 is workable without a fairly significant change in constitutional relations – but I pointed out already that one option might have to be suppression.
I accept your point 2
A change is overdue – what we have is clearly not working for eirther party
The overseas constituency would be a rotten borough, with a tiny number of voters compared to a real constituency. They should be attached to a proper constituency that they cannot distort.
Citizens living abroad are already entitled to vote: http://www.aboutmyvote.co.uk/register_to_vote/british_citizens_living_abroad.aspx . It appears that you vote in the constituency that you were formerly resident in.
I admit, I thought that was the case – thanks for confirming it
“Citizens living abroad are already entitled to vote:”
For up to 15 years only, which was the main reason I decided to apply for French citizenship (at the time I had no vote even in local or European elections, but that has now changed).
Curiously, France introduced constituencies for its overseas citizens this year (previously they could vote in Presidential but not in legislative elections), with just 11 constituencies to cover the whole world. Don’t know if it’s a good idea.
Thanks again for clarification
My suggestion was based on the french idea
The idea of introducing a “passport tax” for its non-resident citizens has been mooted in France, where the biggest issue seems to concern tax exiles in Switzerland. I don’t know whether it’s being seriously considered – or whether the decision to introduce voting rights was in any way related. Maybe a question of ensuring the horse comes before the cart…
I don’t know how many US citizens give up their US passports for tax reasons. I can believe that it is comparatively small. But I suspect that the people who do give it up are all fantastically rich, for whom citizenship means nothing, certainly far less than their tax bill. We’re talking here about the Murdochs, who renounced Australian citizenship specifically so he could become a US citizen.
“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.”
How many of these billionaires would actually use public health, public education etc?
I don’t think this will make a blind bit of difference. That’s before pointing out the glaring inconsistency that a passport tax poses with your definition of tax avoidance.
In fact, why do we need passports at all? They didn’t even exist on any widespread scale before WWI, and now they simply feel a relic of older times when one took half a year to travel the other side of the world.
On the proposal for taxing arrivals on their worldwide income and gains, I agree with this more. In fact 4 year grace period if anything seems to be generous; there is certainly an argument for 3 (and earlier if intention of permanence is established).
Passport is simply a reference to citizenship. Call it citizenship tax if you like – except in the UYk we’re not citizens, we’re subjects, and I don’t like that much either
Will it solve all problems?
No, of course not.
Will it help create minimum tax rates as part of a raft of measures? Yes, it would.
That’s it: not a panacea, but sure as heck a step in the right direction
Richard,
I don’t know about you, but my British passport clearly states that I am a “British Citizen”.
Moreover, the notes clearly distinguish British citizens (who would presumably be those susceptible to be affected by your proposition?) who “have the right of abode in the United Kingdom” from other “British nationals” who do not have such a right (note 2). The latter include citizens of British Dependent and Overseas Territories and … British subjects (whoever they might be?). Not sure where the Crown Dependencies fit into that.
I suspect only the British have such complicated definitions of nationality, with more or less rights attached. My French passport gives my nationality simply as “Française”. Surprising as it may seem, there’s no mention of being a citoyenne! And no suggestion as far as I can see of the existence of second-class citizens/nationals.
Well, I stand corrected!
Thanks
For clarification:
Crown Dependency residents have the right of abode in the UK – partly because there is no formal border between us (we live inside the Common Travel Area).
However, any resident who does not have “strong ties” with the UK – which basically means they have to be born in the islands of island parents and have never lived in the UK – gets a small stamp put in their passport which says that they are not entitled to benefit from the EU’s provisions on free movement and the like.
Alastair Darling made a great fuss about adding Belize to the list of countries with which the Uk has a double taxation agreement, so presumably Belize would be on your “white list”?
No
Not at all
Belize has an income tax rate of 25% which is higher than the UK basic rate of 20%. You have said the Czech Reublic with a 15% rate will be on the “white list”
Shall we stop playing silly games here?
Note the other points I noted too
Belize is a blatant and abusive tax haven