I have the following article on the Guardian's ‘Comment is free’ section today under the heading “The non-dom rule is racist”:
Zac Goldsmith's embarrassment about his non-domiciled tax status is more important than it seems. It cannot be dismissed as simply being an effective blow landed by the Lib Dems in their campaign to retain a key seat; underpinning that blow are a much wider range of issues that relate to fundamental injustice and even illegality within the UK tax system.
The concept of domicile, like so much in UK tax law, has no legal definition. Your domicile is, in effect, your natural home. It is not your place of citizenship, or your ethnicity, or even where you live: it is the place to which you owe your long-term affiliation. To put it another way, your domicile is the place you consider to be your place of national origin.
The concept as used in UK law is, at its core, racist. It was of considerable value in the colonial era. When there were no passports and a quarter of the world was pink on the map, domicile made clear who you were; part of "Blighty", or not, as the case may be.
And, in a very real sense, that remains the case — except the tables have turned. Because domicile is a concept quite separate from tax residence (itself a concept in need of radical reform), the trick now is to be tax resident in the UK, but non-domiciled. That way, you get all the advantages of living here, but don't have to pay all your taxes for doing so. Only your UK-source income and gains, and those income and gains you bring to the UK from abroad are subject to UK tax if you're non-domiciled.
This is, of course, only of benefit if you have non-UK-source income and gains. For the vast majority of those temporarily resident in the UK — for example, the 3.8 million current non-UK-born UK employees representing 12.9% of the UK workforce — the domicile rule will be irrelevant. Their only earnings will arise in the UK, and if they are involved in remittances, they will be sent from the UK, not to it. But for a small minority of about 100,000 people, the rule provides something quite different: a unique advantage to structure their affairs so that they can pay very little or no tax in the UK, bar an annual membership fee for joining the non-dom club of £30,000 per annum, introduced in 2008.
Whether Goldsmith is exploiting this situation is not the real question. The real questions are fourfold. First, why do we let an elite who are as resident in the UK as anyone else pay less tax than others who are also resident here? Second, why do we allow non-domiciled status to be claimed by people who are born here, have lived here much of their lives and are so integrated into UK society that they are even MPs and peers here? Surely, better policing is needed when the loss to the UK from this rule is, in my current estimate, about £3bn a year? Third, why do we allow the UK to continue to operate as a tax haven in this way, at considerable cost to our international credibility and at cost to the credibility of the anti-tax haven campaign the UK is spearheading? And finally, and most importantly, why do we tolerate a tax law that is illegal?
As I have argued for some time, the terms of the Race Relations Act 1976 and the Race Relations Act (Amendment) Regulations 2003 make clear that unlawful indirect race discrimination takes place in the UK if a public authority provides a service that affords a person of one national origin a social advantage over a person of another national origin, unless there is a legitimate and proportionate objective that justifies that different treatment. The granting of non-domicile status is the provision of a service by a UK public authority and it does confer considerable advantage on those who are granted it without there appearing to be any legitimate and proportionate reason for doing so.
Those who lose are, of course, UK-domiciled people who cannot enjoy the tax advantage that non-doms have and which society could most certainly not afford to grant to all of us. The fact that it is the majority who are being discriminated against does not stop this being an abuse of the law, as it has been since national origin become a grounds for discrimination in 2003.
As Richard Wilkinson and Kate Pickett have shown, the more unequal a society is, the less successful it is. The UK domicile is about creating inequality on the basis of national origin — itself an illegal act. What better reason to get rid of it as an economically and ethically unjustifiable anachronism from a bygone age, exploited now only by the richest in our society so that they can get richer at cost to all the rest of us?
And knowing that this is the case is, no doubt, the cause of Goldsmith's rightful embarrassment. We should save him his blushes: let's abolish the rule, now.
What’s the reaction? That I’ve pushed the envelope too far: that the term racist cannot be applied here.
I’d ask, why not? Is discrimination on the grounds of national origin not racist when defined as such by our Race Relations Act? If it isn’t, what else is it?
I stand by my argument: I am convinced its right. The more the libertarians who like to comment on Comment is Free think otherwise the more I am convinced of it.
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:
Richard,
Everything can happen in a lifetime, and I find myself agreeing with you on something:
If someone wants to be part of the political life of this island and, in particlar, seeks to be elected to public office, he/she should make this country his/her home. This comes with a number of rights and duties, including that of paying tax like all the others who call this country their home.
However, I disagree with your view that the non-dom rule is racist, and in fact I find that it is in the majority of cases very fair.
The Non-domiciles do not cost anything to the UK. They are mostly Americans and Europeans who were educated in the US, they have healthcare plans that allow them to receive treatment outside of the UK (or privately here), and their children go in majority to private schools before going to the US for college and higher education.
The majority of the assets they keep outside of the UK were accumulated before they took residence here. However, most Non-doms pay a substantial amount of txes in the UK (in 10 years here I have paid over $4 million in direct tax, excluding VAT). On what basis do you believe it is “fair” to tax them more if they receive so little (or even nothing) in return?
Edouard
Non-doms do cost the UK considerable amounts
We lose the tax you do not pay
You create inequality and resentment in our society
By creating inequality you make health, education, welfare and other outcomes worse for all
You crowd out housing so UK domiciled people cannot live near their work
tax is not a contract: it is an obligation. payment is not made for return. You undermine that fact
The harm is enormous
Richard
Richard, sorry to object but….
You do not lose the tax I do not pay; I have paid several million Dollars in taxes since I landed here. The rest never came over here. How can you lose something you do not have?
I do not create resentment and inequility. My company employs 20 natives. They are grateful for this and they pay tax (the other Non-doms we employ also pay a lot of tax). I (and a few hundred other Non-domiciles() put my kid in a private school that employs native teachers. They are grateful for this and they pay tax.
I rent my accomodation from a native, most Non-domiciles do because they do not want to incur tax on the money they remit. Far from crowding out the housing market, I make my native landlord happy and she pays tax (or so I hope).
I believe your view of Non-domiciles has more to do with your prejudice against success and aliens, than with factual evidence.
In fact, if the harm is enormous as you claim, would you mind pointing out to some serious work undertaken to quantify it.
Thank you.
Edouard
I think the contempt and stress you might create in Uk society is more than adequately expressed by our persistent use of the term ‘native’ – a derogatory diminutive that you may not fully understand but which more than adequately explains your attitude to all around you who do not share your own abusive financial advantage in life.
As a dual resident from a country long subject to racist abuse I have insight into what it is to be treated with disrespect, and respect. That fuels my belief in the equality of all – that you clearly do not share.
And this is why you are so destructive in our society. You think your cash overcomes that harm. I assure you, it does not.
Richard
I did not mean to use the word native in a derogatory way and I believe most people would agree that it is not offensive, but it obviously hit a raw nerve with you. Let’s move on.
Having said that, I would like to ask my original question again: could you please quantify the extent of the harm caused, or point us in the direction of work that, in your view, makes a valid scientific attempt at measuring it.
Thank you.
Richard
Can you give us the examples of the “inequality and resentment” that you claim non-doms create in society?
I have worked with many non-doms (mainly from the US) and can vouch for what Edouard says with regards to their health care and education. I accept that this may not be representative of the whole population of non-doms, but I haven’t seen any examples of the “inequality an resentment” that you state.
All the evidence you need is here
http://www.equalitytrust.org.uk/
Non doms create inequality
Inequality is harmful to the well being of all in a society
It’s interesting that our American cousins are here pleading their case. I wonder if they argue the case with such vigour with their own political representatives?
I am in rather the opposite situation – I’m a UK expat working in the US. I certainly still have UK domicile, although my financial affairs aren’t nearly so grand that that is relevant, but as a US resident, I pay US federal and state taxes on my worldwide income in the same way as an American. Perhaps Edouard would like to argue with his representatives for a non-dom rule on my behalf?
@Richard Murphy
Richard, I have a typed “domicile”, “non dom” and “non-dom” in the search function of the website you have recommended, but there seem to be no documents on these topics.
Where on the site is there something specific about the harm inflicted by Non-domiciles on the local society?
Sam, there are extensive tax relieves for immigrant and non-immigrant investors in the United States and I believe that, despite their complexity they are effective in attracting wealth and job creators. Every country creates its own set of financial incentives to attract and retain them. As I said, the US have various tax relieves, Spain has near-zero tax on remitted and unremitted foreign income, Switzerland has the flat rate, and the UK has the Non-domicile rules.
Edouard
I am staggered by your comment
Of course it does not refer to domicile directly
Domicile causes massive inequality
I asked you to read about the impact of inequality
Try a) reading b) understanding c) opening your mind d) assuming the world is literal e) that this is science
Richard
@Richard Murphy
Richard,
I have asked in three different posts for a somewhat scientifc measurement/quantification of the (harmful) impact of the Non-domicile rules.
All you have given your readers is a claim that domicile [I assume it is Non-domicile] causes MASSIVE inequalities but without any supporting research or scientific evidence.
Since I am not getting an answer from you, I will have to assume that either (i) this research does not exist, or (ii) the results do not support your conclusions.
I expected better….
Richard
non-doms create inequality
domicile causes massive inequality
I think Edouard wants to understand your causal assertion of domicile status and inequality not the impact of inequality per se.
I agree that the non-dom rule is inquitous, but I think you would have a hard time making it stick because there are essentially two types of non-doms, the “inbound” non-doms (immigrants who make (or have made) a lot of money) and returning “outbound” non-doms (essentially the successors of the colonial emigrants for whom the distinction was first made). The latter group is essentially Anglo-Saxon (or Anglo-European) by ancestry, but manages to claim a foreign nexus as a result of being born in the foreign parts.
I have a Scottish wife who was born in Toronto and lived their for the early years of her life, but is as ethnically British as anyone. Equally I have a daughter who happened to be born in the US and lived there for 6 weeks, but still qualifies as a US citizen. Indeed all my children could claim Canadian citizenship by virtue of their mother, and thus could all potentially claim non-dom status like Zac Goldsmith. But I don’t think a judge would decide anything other than that they have British nationality and are all ethnically British.
@Alex
Alex
Sorry – I really don’t think you understand the domicile rule
I am an Irish citizen (and British too)
There is no chance I am domiciled in Ireland
You are confusing issues
Richard
Edouard
I have directed you to evidence that inequality is harmful
The domicile rule quite clearly creates inequality
Ergo the domicile rule is harmful for all the reasons noted
If you refuse to read the evidence and accept the reality I cannot make you agree
But I can cease to engage with someone incapable of following an argument
And I have
Richard
Richard,
You have directed your readers to a website that is advocating equality, or the reduction of inequalities, but without either measuring the extent and cost of these inequalities, or their origin.
In addition, you are failing to demonstrate (or even explain) a clear causal relationship between the Non-domicile rule and inequalities in the UK. One can simply not accept your statement that ‘The domicile rule quite clearly creates inequality’ without further backing. The rule may be viewed as slightly twisted form a local perspective, but that does not mean it causes inequality.
I am perfectly capable of following an argument when one is made. So far you have failed to make one.
You can do better. Try again.
Spot on, Richard.
The natives are restless…
I have always been against racism, which is normally directed at non-English. For that reason, I can be equally opposed to a rule which is essentially racist against us “natives”. The idea of this foreign elite living it large in this country while refusing to contribute in the same way as the rest of us is abhorrent and the commitment of the labour-conservative political elite to keeping this distinction verges on corruption.
@James from Durham
I could not agree more!
I note we are not alone. A commentator on CiF dealing with the inevitable Worstall comment said:
By all means disagree with the argument Timmy but it’s such a shame that, as usual, your counter relies more on sarcasm and condescension than facts.
Richard could have made it clearer in his article that his reference to racism was technical, a legal basis that might be used to get rid of this anachronistic non-dom nonsense. But, as so often, you choose not to engage with the fundamental argument but to mock what is really a side issue.
As you’re not an accountant, perhaps I can help you by suggesting 3 questions you should ask someone who is:
1 Is it not the case that the UK is the only country in the world that has these ridiculous rules?
2 Is it not the case that, if a person is resident in the US – hardly a bastion of socialism, he/she is required under US law to declare, and be taxed on, worldwide income and gains?
3 Is it not the case that, if a person declares worldwide income and gains in this country, for the most part he/she receives full credit for tax already paid in other countries on those income and gains – which are not therefore taxed twice?
At the bottom of all this, Richard is arguing for progressive taxation – tax based on ability to pay – whereas you consistently argue for regressive taxation – tax that everyone pays regardless of means. I’m sure you’d agree that it’s important that readers understand your point of view – or do you?
Again, I could not agree more
Worstall, of course, denied his sarcasm and condescension, but that is all the man has
The opposition are also restless – but largely because they’re losing
@Edouard (London Expat)
Eduoard
You are wasting my time
I have no research that proves non-doms directly cause poverty i.e. because you do not pay all your taxes, live in the Uk without contributing what is expected of society, push up rents, distort consumer expectation because of your excessive lifestyle, distort educational expectation and outcome because the state effectively subsidies your use of a private school and so on that you personally cause poverty
But the evidence is clear: you do enjoy a privilege that increase income disparity and that causes harm
You willingly and wilfully turn a blind eye to that harm
And you say I have not proven my case because you decide not to consider that harm
This is the typical argument of the libertarian abuser: you join that category of those seeking to comment as a consequence
I will not provide the opportunity for you to air your opinions again
Richard
Edouard
Of course the non-doms rules are unfair and mean reduced income for society, it is not a question of research, it is a question of common sense.
I assume that you are French? Would you think normal that a Briton coming to live in Paris would only pay taxes on his French income? Of course not. Not only that, but the French state would expect all foreigners French residents to pay taxes on their worldwide income, regardless of their origin or nationality.
@Hum
You are right of course
But you are using logical reasoning
And common sense
That may not be enough to win your case when the opposition has deep pockets and self interest at heart
Funny how they in combination overcome all reason
Richard
Further comments from Edourd have been blocked as it is clear he has no intention of contributing to meaningful debate
Richard
Rather ironically, I believe that the Republic of Ireland is the only other country which operates similar domicile rules to that of the UK, perhaps understandably so, given the history of the two countries.
I may be wrong but I believe that the Philippines is the only other country operating the US’s worldwide taxation basis based solely on citizenship.
Every other country (I’m sure with a few exceptions) seems to operate systems based either on physical residency or, very confusingly, they use a system which is based on “domicile”, but where “domicile” has a very different meaning to the definition in the UK (and Ireland).
If the UK was to go down the route of the US/Philippines model, taxing its citizens regardless of where they live, then this would bizarrely mean that many people, especially children of expatriates, could be subject to UK tax due to holding a British passport having never even set foot in the UK. This is indeed a problem faced by numerous US citizens, although if the reason for their holding of US citizenship is too remote, then its no big deal for them to renounce it).
But surely the UK faces an “opposite reaction” problem in that if it is able to tax foreigners who are resident in the UK on their worldwide income, gains and assets based on physical presence in the UK, with domicile status becoming irrelevant for tax purposes, then it becomes very hard for the UK to continue to tax UK nationals who are leaving the UK after their departure, whereas at present HMRC has many ways, not least the 3-year “deemed domicile” provisions and the existing domicile rules generally, to keep such emigrating individuals within the UK tax net after they have left the UK.
Surely there must be a big risk that the extra tax revenues raised from foreign-domiciled UK residents would be offset by collecting far less tax than at present from UK nationals who have left or who decide in future to leave the UK ?
Or are you saying that whilst that may well be the net financial outcome, it would nevertheless be a fairer basis of taxation ? From previous discussions that I’ve had with HMRC, they seem to accept that the stickiness of the “domicile of origin” works both ways, and that in many respects they prefer the current system because its much easier to keep their tentacles on a departing very wealthy UK national, than it is to get those same tentacles firmly into a foreign-domiciled new UK resident, not least perhaps because the wealthy foreign-domiciled new UK resident will have taken steps to legally restructure his financial affairs long before he arrives in the UK. I know that some senior HMRC officials have, as a result, preferred to see the status quo remain.
Putting it into perspective, if there are 100,000 non-doms currently claiming that status in the UK, then there must be a lot more than 100,000 UK resdoms who could exploit a reversal of the rules. Even assuming that there are 500,000 UK resdoms who might benefit from a rule reversal, they’d only need to be on average 1/5th as wealthy as the existing 100,000 nondoms for that to result in a net tax loss.
A fascinating debate, but I think the bottom line is that its very hard for the UK to have it both ways, in trying to hook both nondoms and resdoms, without it being potentially discriminatory for one of the two groups ! I cannot readily see how both groups could be caught by the same rules so it could be nothing more than a trade-off.
I’m not sure that HMRC can get much out of people who are not UK resident. Yes, they can tax income arising in the UK like rents. There is a deemed domicile rule for IHT which could catch leavers three years after departure. For CGT there is the rule to catch temporary leavers. I really don’t believe HMRC would collect less as a result of the abolition of “domicile”.
Loudon’s attitude is depressingly familiar, it being the argument used by a lot of wealthy individuals who seek to pay the absolute minimum in tax while getting the benefits of a civilised society paid for by nearly everybody in it. He may well have paid several millions in tax while here, but this is probably far less than he would have paid if we had a fairer tax system, and taxed all his income, wherever it arose. What I find objectionable is the implication that since he doesn’t use state schools and healthcare he’s actually doing all us poor ‘natives’ a favour. No, the person he’s primarily doing a favour to is himself, by doing what is apparently a very lucrative business under a tax regime where he can pay a relatively small proportion of his income in tax.
Since, by the sound of it, he works in the City, and the activities of the City have now cost the UK state many billions of pounds (which the City wants all of us to pay for while they carry on as usual), I would say the benefit we derive from this gentlemen and others like him is one we could well do without. If the primary reason he’s here is to pay as little tax as possible, we can do without him as his ilk.
“the state effectively subsidies your use of a private school”
An interesting assertion, Richard.
Does this refer to the charitable status enjoyed by public schools, or is it some other argument? How does the benefit of charitable status compare to the cost of educating a child in the state system? I seem to recall that the cost per year per child of a state education in the UK is somewhere in the region of UKP6000 per year, but that figure is dredged from a half-remembered newspaper article I read on a train a few years ago, so it may well be wrong. What is charitable status worth to the average public school, per child?