To continue my series on tax reforms that a progressive government should introduce to tackle inequality in the UK, the next obvious action is this:
Abolish the domicile rule
Any government wanting to evidence its commitment to equality of taxation would have to start with abolishing the domicile rule. This rule, which still provides the opportunity for some wealthy people who do not consider the UK to be their permanent home to avoid the obligation to pay UK tax on all their income and gains for many years whilst they live permanently in this country, quite clearly establishes a situation where people secure a social and economic advantage based on an accident of their birth and / or their wealth. No one who believes in social and economic equality or equal treatment before the law could possibly believe that this is remotely related to any concept of justice. It is instead wholly related to providing an advantage to a tiny and wealthy minority at cost to all the rest in society in a way that deliberately makes clear that there is, quite literally, one law for the rich and one for everyone else. This rule has to go.
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Richard
It is an easy answer and at first glance its difficult to disagree with. As we have found out, great headlines don’t always translate into a workable policy (not without proper planning and analysis).
Whilst possibly perceived as unfair many countries have similar regimes, albeit created through different means (lower tax rates for a period; excluded income; domicile – eg Israel, Portugal, Spain, Italy, Ireland).
The current domicile regime requires people to pay tax here on income and gains that they use here (very widely defined) if they are UK resident. It does allow them to accrue additional wealth, by their accident of birth, but not that they can use. It follows that the real risk is in respect of IHT – how would you change the rules round this? Doesn’t seem right that someone is subject to UK IHT on their death if they’ve been resident here a year; deemed domicile kicks in at 15 years. Where would you draw the line between these two?
What would be your view on income and gains that were earned/realised before UK residence. Much of the non-dom wealth that is used in the UK is pre-residence. Is this ok?
As a consequence of this change, would you give a step up in base cost on entry, so a newly UK resident only pays tax on gains made once UK resident?
It tax planning at its most basic to leave income in a corporate at generally lower rates. Assuming that non-doms that you are looking to tax have surplus wealth, why wouldnt they just do this with their existing pre-residence entities? Assuming the TOA rules dont apply, would you want a close company apportionment rule to deal with this?
How does the trust regime fit in with this change?
The UK has reasonable residence rules now: I have to say that as I helped shape them
We simply do not need domicile to be fair to those arriving or temporary residents : tho0se issues are covered without alternation being required
There is no base cost to entry for people now and there would not be from the change
I also helped draft the residence rules (apart from the split year treatment, which is rubbish)
I do not recall your involvement
Really Richard?
You helped shape the non-dom rules?
I can’t find any mention of you in the formulation of non-dom rules at all. All I can find is you saying repeatedly that they should be changed.
So if you helped write the rules, why did you do such a bad job of it?
I helped write the current U.K. residency rules
A slight difference there
I can’t find any record of you writing the residency rules, or indeed being involved in that process at all either.
Other than writing a few blogs about it anyway. I can check the House of Commons library if needed.
Could you point us to where you say you had so much input? Because I can’t find any record of you at all in this process.
You clearly do not know how advisory teams work
And that is also your last comment here because you are a troll
In a world where Johnson’s home-sec can withdraw a Brit’s British citizenship at the drop of a hat (and without asking Canada if it accepts our rejects), I am sure residency, domicility and tax liability will be addressed by the powerful to their full advantage (even without “c” tories being lapdogs to the rich).
I as an anti-avoidance advisor at HMRC working with the treasury team on the legislation. To be fair, I didnt know you were involved either.
I worked with the Labour Treasury team on this in 2009/10
A very small group worked on the rules then and they went on almost unchanged by the next government
Agreed. Let’s make it go.
What do you mean by “abolish the domicile rule”? Domicile is a concept of general law, that applies to rich and poor alike, and affects for example whether you can seek a divorce in the UK (or must seek a divorce elsewhere), or which country’s laws should determine who should inherit what. Unsurprisingly therefore it has a role in inheritance tax. Would you seek to abolish that?
We no longer have a concept of “ordinary residence” in tax law: would you make any distinction for income tax or capital tax purposes between someone who has been resident in the UK for one or two years, and someone who has been here for nine or ten year? If not, in practical terms, how are you going to enforce payment of UK tax on the income and gains realised in Poland by the proverbial Polish plumber (or the US income of the seconded city worker, or whatever) during the year or two he or she is working in the UK? (Perhaps after Brexit the problem of internationally mobile persons will become very much less acute.)
I’d just mention in passing that the Law Commission published a report back in 1985 on the law of domicile (LC 168), which included some proposals to clarify and reform the law of domicile for general reasons, not just tax reasons, and largely put it on a statutory basis, like the statutory residence test, but their recommendations were not implemented. If you added that to the deemed domicile changes from 2017, perhaps there is not much more to be done here?
I am referring to its use for remittance bases of taxation
Let’s be honest.. you talk about something complicated, like tax, and usually it is open season to say what you like.. that is until someone with real knowledge comes on board and you get found out..in this case very badly
The other day someone who I note for their tolerance told me she had been reading the comments on my blog. She said she was staggered by my patience with idiots. I assured her that it could run out.
No need for that, Hugh.
OK, well, I’m not convinced that we need to abolish the remittance basis entirely, now that we have rules of deemed domicile for all tax purposes.
I can still see some administrative benefit in not imposing the arising basis as soon as a non-domiciled person arrives in the UK.
If your point is that the remittance basis charge allows the wealthy to elect to be taxed on a more beneficial basis – undoubtedly true, as there is no point paying the £30k or £60k charge to elect for the remittance basis, if tax under the arising basis would be less – then perhaps we need to think about moving the deemed domicile line for income tax and capital gains purposes, from 15 out of 20 years to say 7 out of 9 years.
[…] add another tax reform to my series on how to reform the tax system to reduce inequality in the UK, this one is yet another obvious […]
[…] add another tax reform to my series on how to reform the tax system to reduce inequality in the UK, this one is yet another obvious […]