Domicile: where are the Treasury now?

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The Treasury and HMRC have published their review of the domicile rule and laws on residence.

The review starts with all the usual platitudes about tax competitiveness and the importance of keeping some 'very special skills' in the UK. It even goes so fair as to talk about fairness.

But it misses the really important point. The Treasury admit that the new charging arrangement they propose is likely to be used by no more than about 4,000 people a year. But they also say that 80% of all non-domiciled people stay for less than seven years and will be unaffected by the new charge as a result.

This still means that more than 80,000 people a year who are resident in the UK will be able to run their tax affairs according to entirely different taxation law from everyone else in the UK. But not once does the paper ask what the impact of this is on the remaining 30 million taxpayers in the UK, how this affects their tax compliance, and how it informs their opinion of fairness in their relationship with HMRC and the government as a whole. None of those things can be helped by having a tax system that treats foreigners and the wealthy (always touch stones for discontent, whether we like it or not) as being privileged compared to the local population.

I believe that the yield from improved tax compliance under the domicile rule would massively outstrip losses to the UK from these small number of people leaving.

I think now is a perfect time for change to this rule. There is going to be a downturn in demand for their services in the City.

And candidly, we know that that US people come here even though the domicile rule gives them almost no advantage, which suggests that the supposed power of the rule is a fiction.

A fiction that the report itself does in fact confirm because you can almost feel the tension that runs through 100 Parliament Street where the Treasury and HMRC both sit in an uneasy relationship as you read this report. The Treasury has demanded the rule be kept, but its clear the Revenue are going to take all the powers they can to make sure they can stop disguised remittances through relatives, trusts and offshore personal service companies. The truth is that this is going to make the domicile rule remittance basis a lot harder to use in future.

So why can't they resolve their differences, face reality, support ethical taxation, abide by UK race relations law and show faith with the ordinary people of the UK by treating them as being equal before the law, and abolish the domicile rule altogether? That is the question the paper begs to be answered. It's like a watermark on every page, and yet it isn't addressed.

And that can only represent a lack of political will at the end of the day.