Can you go to Guernsey?

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The New York Times asks that question of Guy Hands who claims to have quit the UK to take up tax residency in Guernsey. As they say:

[T]he most renowned British private equity financier has not abandoned the land of his birth just for the seaside splendor. What has mainly drawn him to Guernsey are its welcoming tax rates — 20 percent on income and, crucially for those in the business of buying and selling assets, zero tax on capital gains.

The question is: Will he get away with it?

I’d add a second question: should he get away with it. But I answer that in the article:

“My opinion is that he is free-riding,” said Richard Murphy, the founder of Tax Research U.K. and an adviser to the British government on tax evasion techniques. “Guy Hands wants to make money out of the U.K. economy and the structures and guarantees we provide but he does not want to pay for it.”

So let’s return to the first question. The answer is no one is sure: the UK’s tax residency laws are in a mess an clarity is now needed, urgently.

I have proposed a relatively simple rule for those with British passports: they should pay UK tax wherever they live in the world unless they can prove they are paying tax on their world wide income to state with a system similar to to that in the UK. I think you should presume that tax havens need not apply — Guernsey included (no capital gains tax for a start).

And I’d simplify the rules for those coming to the UK. Four years on a remittance basis and then taxed on world wide income. So secondees can have their time without re-organising their affairs and then they pay full whack — because they’re getting full whack in exchange.

It’s simple, logical, straight-forward, certain, and all those other qualities the tax profession says it loves. The only problem is it would collect tax by the bucket load — and rightly so (because those ‘exiles’ all have the right to return — so have the implicit guarantee of UK state services available to them at any time — plus UK protection — for which they should pay). So the tax profession don’t like it — giving a complete lie to all their demands for simple taxes.

In that case, and because it is clear that it is only hypocrisy that allows these loop holes to continue,  let’s go back to the second question: should ‘tax exiles’ be allowed to free-ride the UK? Clearly not. To use the UK to make money and then seek not to pay tax on the resulting gain by gaming the rules  is straightforward ethical abuse. And since ethics do inform legislation and  reform is needed here, meaning that ethics are in play, let’s create a system that is, as I have suggested, simple, fair, transparent, easy for 99% of people, and collects tax form those who have tried to free-ride to date.

I’m aware that there will be plenty of objections from the usual suspects. It’s our job to ignore them. It’s the job of the UK to collect the tax owing to it and prevent abuse of the system. And I think the current residence rules are being abused. That’s why it is time for change.