According to the Guardian George Osborne has firstly refused to abolish the non-dom rule which creates one tax law for the rich in this country and another for everyone else. And secondly he has suggested that Labour will not be abolishing it either because Labour is suggesting that there should be a temporary residence rule for people who come to the UK for a period of up to four years (maybe less) so that people in that situation are not taxed on their income outside the UK if it is not remitted to this country.
This suggestion by George Osborne is the action of a desperate man. He knows he cannot abandon the non-dom rule because far too many of his party donors rely on it. But it's the claim that Labour is not abolishing the rule that is absurd.
Labour clearly listened to me (and maybe others; I don't know) on this when I said that if the domicile rule goes a temporary residence rule is needed. This is what I wrote recently:
There are good reasons why the UK may want to provide special arrangements for the people who take up short-term residency in this country [if the domicile law is abolished] so that they do not suffer undue taxation, and even double taxation, as a result. I would therefore encourage any government to offer someone coming to the UK the chance to only be taxed on their UK source income for a period of up to 5 years, but after that anyone still living in the UK should be taxed as if they are fully UK resident in exactly the same way as all other people living in this country. The adoption of such an arrangement would allow the domicile rule, and all the abuses that go with it, to be abolished, for good. It should never be the case in the future that the UK can be seen as a tax haven, which the domicile rule has permitted for some of the world's wealthiest people.
Why do this? To let students and employees come to the UK for a few years and not have to reorganise their worldwide affairs to suit the UK tax system: that is why. But after five years the commitment to the UK will be long term and so tax will have to be paid in full on that worldwide income, come what may.
That's not continuing the domicile rule in any shape or form. It is a short term residence rule that says we welcome short term stays and do not want to put obstacles in the path of those coming on that basis. But it also says if you stay you are on a level playing field with everyone else in this country, and if Osborne is frightened to say that, shame on him.
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:
Of course, under that system it would be clear that Guy Hands & Robert Gaines-Cooper were both well outside the UK tax net. (Gaines-Cooper perhaps more contentedly so than Hands if reports are to be believed)
So, effectively, non-dom status continues for those staying less than 5 years (i.e. the rules will operate in the same way as they did before for such people).
No
A temporary residence rule is someting fundamentally different
But it has the same effect – the tax position for a vistor who comes to the UK and stays here for less than 5 years will be no different under your “temporary residence rule” than from what it is now under the non-dom rule. Agreed?
But it is a temporary residence rule, not granted by accident of birth, not passed on in perpetuity, and will; be subject to anti-abuse rules
If that’s the same as non-dom cats and dogs are all the same because they have four legs
I reckon perhaps >99% of the people who would be “temporary residents” under your proposed new rule would be non-dom under the current rules.
In that case, you’ve merely changed their nomenclature from non-dom to temporary resident whilst preserving their tax status for the first 5 years of UK residence.
Most non-doms do not stay longer than 5 years anyway (as Maugham wrote this morning). And the student argument is an odd one: how many overseas students would have significant income and gains outside the UK anyway?
So we won’t lose their tax
And we won’t be prejudicing them as they are not the problem
The long term abuse is and this policy change addresses that and resolves it for good
a temporary residence rule is not that bad an idea but 5 years is too long unless temporary residents become liable for the whole period of their residence once their residence meets or exceeds 5 years. temporary residence should also come with limited civil and political rights – no vote; no political donations; no state education or health for them and their dependents; and pay to use police and fire services. strong protection would also be necessary to ensure that income earned in the UK in fact would be taxed here and not subject to `let’s pretend it was earned abroad` scams.
there’s also the current scam involving the 2 year rule for temporary workplaces where people falsely claim to be planning to be here for no more than 2 years because they are only taxable on what they earn after two years.
Quite right, enough already !!
I had several colleagues in the City from Europe who earn many millions, taxed at something derisory by HMRC then back to France for early retirement with the loot.
No other country does this as far as I’m aware.
“temporary residence should also come with limited civil and political rights — no vote; no political donations; no state education or health for them and their dependents; and pay to use police and fire services.”
I don’t want to live in a country where visitors are made to feel so unwelcome. I am proud that Britain – the Britain we all work so hard to build – is seen as attractive by the rest of the world. The measures you suggest strike me as both elitist and petty and would diminish our nation.
In short, I find these proposals a bit too UKIPpy for my tastes.
fine, leave, and take your non-dom mates with you.
belgraviadave says:
“there’s also the current scam involving the 2 year rule for temporary workplaces where people falsely claim to be planning to be here for no more than 2 years because they are only taxable on what they earn after two years.”
This is factually wrong. Travel and subsistence expense can be paid tax free for an up to 2 year secondment but it’s just wrong to claim that what someone EARNS is tax free. It’s taxable.
Richard – Given that there are lots of real anomalies in the law, shouldn’t you be putting your readers right when they complain of imagined ones?
KRs
Tim
There’s only time to deal with fools
Not innocent error
Absolutely right.
Osborne has been caught stone-cold here and is, quite plainly, bricking himself. This was exactly the jolt this election campaign needed. Osborne now has two options:
1) agree to abolish the rule, thus taking a pasting from his donors and looking hopelessly weak and outmanoeuvred; or
2) disagree and (continue to) defend the indefensible. this of course is equally risky, as he’s going to be painted (quite correctly) as a man who is even more than usually prepared to sell the interests of the UK in favour of a small number of rich backers.
I wonder if this is the day that the election will be decided? It won’t take much movement in the polls, as they have been static for so long.
If it is, I claim small credit
There’s a one eyed temporary non dom on the road to no taxation….I could go on in the vein of J Milton Hayes following Rudyard Kipling, but will not. Kipling wrote a poem about Auckland Colvin who introduced income tax into the Raj. Oddly enough, Colvin was descended from the family of Carew. All I can say is that for all the talk Westminster can make as many laws as it likes, but the ones with the money will get round them unless you tax things that cannot be avoided.
Richard,
Perhaps this blog is a better venue for this question. In order to ensure compliance with the not only the letter of the law in a non dom change, should we also strive to ensure the spirit of the law is adhered to by also simultaneously introducing an exit tax on anyone seeking to shirk their societal obligation and fleeing to Ireland, Switzerland, etc?
Exit taxes are not allowed under EU law
Correct. The floodgates cannot be closed.
Your belief that this will result in extra net revenue to the UK will prove staggeringly inaccurate.
Just like everyone left because of the 50p tax rate
Etc etc etc
All of which floods to the exits have never, ever happened
Not quite true as the French have exit taxes as far as unrealised capital gains are concerned, albeit with some loopholes. No wonder most of the wealthy ones are in South Kensington! I wonder how this non-dom decision will affect them? Good work Richard.
Richard,
Perhaps we can arrange an initiative! At the very least along the lines that Mike lays out in terms of the French approach to this issue of people shirking their societal obligations to society.
Just because it isn’t allowed in EU law does not mean we have to stand for it. That would be the same excuse used by Amazon, Google, Apple, etc, we have to be better than them.
The 50% rate was a direct comparison with a 45% rate. For an extra 5% people will not up sticks. Here we are talking about a difference between (0% plus £30k/£60k/£90k remittance basic charge) and 45% (50%?) of their non-UK income plus UK CGT on foreign gains which are not currently taxed.
Your argument is flawed. They will leave in their droves.
But I repeat time and again, large amounts of US research shows people do not move for tax
US research? How is that relevant? US citizens and green card holders are taxable regardless of where they reside, so of course they don’t move for tax reasons. However, a record number of Americans expatriated in 2014, with 2013 a previous record, in order to escape the US tax net.
Wealthy Americans even establish trusts in other US States in order to reduce state tax (as opposed to federal tax).
About 1,000 left the U.S. out of nearly 300 million
I rest my case
With all respect using US research as a source of information is like comparing apples and oranges.
When a US Citizen moves they remain subject to Federal Taxation even if they leave the country entirely. In light of that a major upheaval for the individual yields relatively little benefit. The only thing they can possibly gain by moving is small variations in local state taxes and these are relatively negligible in their impact compared to Federal Taxation. US Citizens moving abroad can be substantially worse off due to interaction of the two tax systems they must work within simultaneously. In light of this US Citizens are strongly encouraged to remain in the USA and the rewards arising from state hopping are really too minimal to encourage a lot of movement.
An individual leaving the UK doesn’t need to worry about an equivalent of Federal Taxation and if the non-dom rule is abolished as Andrew rightly points out it could make a massive difference from a taxation point of view.
The gut reaction from your typical non-dom will initially be ‘no way’, but looking more closely I personally suspect that on reflection there will be four distinct positions:
1) Those that made a relatively borderline benefit under the non-dom arrangement because of the remittance basis charge. These people will probably accept the change, but little revenue will be raised.
2) There will be those that can restructure their affairs to avoid realising gains or making distributions of income. This will mean that very little revenue in raised and in some cases following that careful assessment they may pay even less in tax than they did previously. There is a lot of tax planning that can be achieved simply by avoiding doing things until an individuals ceases to be resident. On the whole I think some revenue will be raised from these people, but not a lot.
3) There will be those that choose to leave the country to avoid the charges entirely. This will reduce the revenue raised.
4) There will be those that put up with it on the basis that they really like London and can’t organise their affairs to avoid the tax. These are the people that will pay substantially more tax, but I am sceptical if somebody tells me that wealthy people won’t be able to organise their affairs to avoid taxation. Consequently I see relatively little revenue being raised.
I have assumed only 25% of the potential revenue is raised
In other words I have more than allowed for your claims
Your figure are way out.
3,415 Americans renounced citizenship in 2014, which was a record up from from the previous year’s record of 2,999. That’s 6,414 in 2 years.
On a pro-rata basis with the UK population, that’s around 1300.
If 1300 of the UK’s 5000 non-doms who are paying the remittance basis charge was to leave, and they are apparently paying an average of £132k of tax, that’s close to £1.7 billion of tax which would be lost.
You seem to be providing Ed and Ed with completely duff information.
You ignore the additional yield from the rest
Silly mistake
The 1,300 figure is quite interesting, but will be an underestimate because you are comparing a massive decision for a US Citizen to a much easier decision for a non-dom.
It is worth considering the following.
1) These people weren’t leaving because the US tax system had suddenly changed anywhere near as dramatically as the taxation for a non-dom will change.
2) These people were leaving the USA, a country they were previously a citizen of, probably their country of origin. They would be connected to the USA in a way that the vast majority of foreign non-doms simply wouldn’t be to the UK.
3) These people wouldn’t have the right to return to the USA after doing this and could even be excluded from the country permanently, whereas a non-dom could leave and come back if they changed their minds. It isn’t a life changing decision.
4) The USA subjects people to all sorts of exit taxes and restrictions on investing in the USA after doing this. Leaving non-dom’s won’t pay any penalties at all.
I suspect the number of people departing completely, or becoming non-resident will be quite substantial.
It looks like the figures that are bouncing around suggest that 6.6 billion in tax is paid by non-doms at the present time and that seems to be a reliable figure. I have seen figures suggesting that the most that could be made if nobody left is an additional 4 billion in tax, a figure that was viewed as very optimistic, but I will use it for these purposes and it suggests that any figures will be optimistic in terms of tax collected.
By my estimates that means that you need 63% of non-doms to stay to break even. The optimistic view would be that if you want to yield an additional billion you will need 72% of non-doms to stay.
Andrew’s figure of 1,300 leaving would suggest a gain to the treasury of 1.6 billion, but for the reasons stated above I think that is wildly optimistic. His anecdotal suggestion that 66% of the non-dom’s he deals with would leave suggests a loss of about 3 billion in tax and again the potential loss could be much higher because we are being optimistic about what the remaining 33% would pay.
None of these views take into account the other taxes people pay as a result of living in the UK, so there would be a knock on effect elsewhere that will be hard to identify.
Nobody will be able to calculate the true impact of this sort of change until after it has been made, but as Sir Humphrey Appleby would say it is a very courageous decision. Nobody knows if this could lead to a substantial loss of revenue.
Based on all part experience when changes in UK tax we’re going to give rise to mass exodus from the UK I would be staggered if 5% left
And that, based onUS evidence of people moving for Rac reasons, may be high
The reality is, people are just not that sad
But I accept some may become non resident and live here 89 and not 120 days a year
That just loses us the fee and no more
Now, shall we move on?
I also “forgot” the tax revenues that the 1300 departees generate from their sizeable UK workforces, which would also be lost.
My point remakns valid. You have tried to justify your claim that “people don’t move for tax” by referring to US expatriation figures which are severely understated.
Investors do not live above the shop anymore
And what is amusing is you think all those leaving will be non doms
Are not Non Doms just the tip of the iceberg? What about UK Tax Residents
not declaring overseas income? Know lots.
That’s what automatic information exchange is for