On Monday I noted that in my opinion the abolition of the domicile rule would be the biggest single contributor to tax justice in the UK. I learned tonight that they have plans to do just that. After eight years of campaigning on this issue my wish will be granted: if we have a Labour government the domicile rule will go. As they have said tonight
- Labour will abolish the non-dom loophole so that everyone who comes to the UK and makes the UK their permanent home pays tax in the same way from April 2016.
The significance of this cannot be overstated. For over a hundred years the UK has run a two tier tax system. That tax system meant that those who could claim the UK was not their permanent home could get away with only paying tax on their UK income and gains and on any income they brought to the UK from abroad. What this, inevitably, meant was that those who had wealth and who were not domiciled could hold that wealth outside the UK and not be taxed on it if it was, for example, located in a tax haven.
This change does then means four things. First, it means that a nail has been put in the coffin of the UK tax haven. That is because non-doms could be resident here and pay tax on only a part of their income, which was an advantage simply not available in any other equivalent country around the world. This will now end. The UK will no longer be a tax haven for this reason.
Second, and by obvious corollary, the UK will no longer be supporting the tax havens who picked up the business of holding the offshore funds for the UK non-doms. That is also good news.
Third, and more important than either of those, everyone in the UK will now be equal in UK tax law. It has been staggering that this has not been the case for so long, and vital that it becomes so for three reasons. First, it means the wealthy do not get an undue tax advantage. Second it means that the well advised cannot now abuse the tax system in this way. And third it means people coming from elsewhere to the UK will be on a level playing field with all those already here, which social justice demands.
Finally, this means that the businesses owned by non-doms cannot access cheaper capital than those owned by domiciled people. The result is a level playing field for UK owned businesses that means that this change should be widely welcomed by the business community.
The inevitable question that will arise in the right wing press will, however, be about whether this will result in three things. The first is an exodus of wealthy non-doms. The second is a collapse in London house prices as a result. And the third is a collapse in tax revenues. Let me deal with these issues.
Some non-doms will no doubt leave. But when I say 'some' I mean a handful. First that is because there is nowhere else for them to go that is equivalent: London is the place to be and be seen and this rule change will not alter that. Second, despite the threats on previous residence rule changes and on higher tax rates almost no-one ever moves for tax purposes. Quality of life is more important than that, especially if you are already very wealthy. And third, the UK still has favourable taxes compared to most places even if they have to be paid in future. So only a very few will go, and we will not miss them.
Second, if house prices fall at the top end that is good news for most Londoners who are priced out of the housing market and who are my real concern.
And as to tax revenues? First, let's note these people do not make major tax payments now. By definition they underpay tax at present. So in principle revenues have to increase unless non-doms flood to the door. They could, of course become non-resident and achieve that apparent impression of leaving but the direct tax effect will be small as a result of that precisely because they pay so little now. And because they could become very easily non-resident but still keep their homes here and so still spend considerable sums in London if in the UK in total less than 90 days a year if they also have a home elsewhere (as, by definition, they really should) then the indirect tax effect on VAT, etc., will also be small, precisely because many of this group will already spend large parts of the year outside the UK.
So, my estimate of tax to be raised is not as high as it was in 2007, when I thought it could be £4.3 billion, because the rules have been tightened since then, some money has been raised by the non-dom levy since that time and because I think it likely that those rule changes will have reduced abuse but I am equally sure that the revenue raised will run to hundreds of millions and maybe exceed a billion pounds a year. I cannot see how that cannot be the case.
But I stress, whilst that money is very useful this change is not all about cash. It is about creating justice, a level playing field and a single tax system in the UK that ends part of our tax haven status. And for all those reasons I think this is an enormously welcome election promise.
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:
Buy me a coffee!
A brave move by Labour. And now the Tory backlash…
”I learned tonight that they have plans to do just that. After eight years of campaigning on this issue my wish will be granted: if we have a Labour government the domicile rule will go. As they have said tonight”
I agree this is good news and I hope you’re right Richard, but how confident are you that Milliband really means it?
I am very confident
Thanks, and I hope you’re right. You’re spot on regarding the importance of equality that this pledge represents.
Richard,
Job well done! Can a passport based form of taxation and a NSDAP style tax payment system be far behind?
Miracles take longer
NSDAP? Really?
Dave,
A national system of debits and payments (NSDAP) is a rather sound idea discussed on these pages in an effort to defeat both tax evasion and avoidance. Admittedly, it does call for a great deal of coordination.
Thanks, Richard. If only I wasn’t an atheist I’d be now be praying for a Labour victory.
You do not need to pray, Carol. Just sit still and think. That should do it.
I’ve been smiling ever since I heard this news.
The Irish have a far more relaxed non-dom rule if you are prepared to pick Dublin instead of London.
But very, very few would
People won’t leave London
Michael, if some of these people leave because the non dom rule is abolished, so what? If the primary reason they live in the UK is to get lower taxes then elsewhere, whilst at the same time pulling up London house prices (in ther case of those of them that are wealthy, which most are) and having an unfair financial advantage over others, we’re well shot of them.
If, on the other hand, they don’t live here primarily for tax reasons and stay, as I suspect most will, then fine, we’ll get mote tax revenue. I think it’s known as win win situation for 99.99999% of the UK.
Oh but they will, judging by the two calls I’ve already received this morning from two of my wealthiest non-dom clients (both NRIs). Dubai and Singapore will be their respective destinations, where they already have very strong business and family connections.
Between them they employ over 150 staff in the UK. Both of them will be gone during the 2015/6 tax year if the non-dom regime goes. The existing 150 jobs will probably last another year or two while they migrate their businesses to Asia other than a skeleton operation in the UK, they won’t be investing further in the UK. Both of them paid the £90,000 RBC in 2014/15 and they and their UK businesses (which they built from scratch) contribute over £8m of taxes (excluding social security) to the Exchequer each year.
That’s just two non-doms and they are not even in the upper quartile of the non-dom wealthy.
Economic madness from Miliband.
Let me be candid
First I don’t believe you
Second I don’t believe your clients
Third your clients really don’t get business ifgey think it that easy to move
Fourth, in two years I guarantee you will not own up and admit they stayed
Let me be equally candid.
Firstly, four more clients have since contacted me to say they will leave if the non-dom rules are scrapped.
Secondly, I believe that two of the latter four will stay when push comes to shove. The other four will definitely go.
Thirdly, their businesses are of a nature which makes it easy for them to move. They do not need to have their head office central admin services in the UK. It is only here because the owners are here. It seems clear that it is not my clients who “do not get business”. They have been very profitable businesses over many years. They certainly “get it”.
Fourthly, in 4 of the 6 cases I won’t be able to “own up and admit they stayed” because they will have gone! They will be gone within 12 months, let alone 2 years. I suspect redundancy notices will be served shortly after any Labour victory. They already employ dozens in Dubai and/or Singapore. It is not a big task to expand those offices.
Rest assured that this will be the top of the iceberg. Miliband will destroy the UK’s economy very quickly by driving wealth creators away.
If you are right ( and I do not believe you) what sad people you act for
We can do without them
Bad tax payers are lousy business people who screw everyone into the ground
But that’s not the point.
Whatever one’s view is on non-doms, your claim that they will not leave is compete nonsense. The economic argument is completely destroyed. The penny will soon drop with Balls and Miliband.
The Channel Islands and Isle of Man are also going to see a big influx of wealthy new residents from the non-dom community
First those places can’t see an I flux – you assume there are places to move to
Second, do you know just how boring it is to live there?
One or two, even a few hundred, will go, of course
But that’s it
That’s always been the way
Interesting, what incredible faith you have that Labour will actually do this, in the way you expect. I very much look forward to the tax consultations with Government on this. Past experience, with any Party, makes me incredibly sceptical. But how on earth is non UK income going to be policed?
You mean you think no -UK income is not policed now?
And have you heard of automatic information exchange?
Brilliant news – and long overdue.
No I do not mean that non UK Income is not policed – just incredibly badly.
And I think you know that.
And automatic information exchange?-Of course I have- the usefulness depending on who you are asking because some tax authorities are worse than the UK’s.
But it is starting to come out that Labour will tinker with the rules rather than wholesale reform.
No such thing has come out
The domicile rule will go
There will be a minor change to residence rules
Some of these people have built a business and wealth with an unfair advantage, the ending of this resident issue will level the playing field a little more. This is what we want from labour, I hope they go further and reduce the wealth gap our country will be much better off for it regardless of what the scaremongering right would say.
If they go…well…life, as they say, is a bitch.
But they would probably go anyway, as soon as another tax-free leech scheme starts elsewhere.
I’m starting to think that benefit crooks are probably a lot more honest than rich tax cheats, at least the benefit crooks money stays here!
With the amount, and financial size, of the various financial industry criminal enterprises uncovered in the recent past, having the financial mafia decamp en-masse to another tax-free-lifestyle should not bother anyone too much.
http://www.theguardian.com/books/2014/aug/29/socialism-for-the-rich