I was rung by numerous organisations yesterday wanting to ask my opinion on non-domiciled and taxation. The story reappeared in the press at the weekend with the suggestion being made that George Osborne is considering reducing the seven year period which can elapse before a non-domiciled person has to pay a levy make use of this status to reduce their tax liability in the UK.
I pointed out that the real issue is not the problem of the domicile rule, however significant that is. The real problem is the fact that the UK does not, at present, have an effective residence rule, and many people cannot be quite sure whether they have become resident, or non-resident in the UK as a result of legal ambiguities that now exist as a result of conflicting court decisions. This is a much bigger problem, not least because it has serious impact upon those coming to the UK to work, and leaving to work elsewhere.
There is a solution to this problem. It can be found here, and I recommend it.
Disclosure: I advise the TUC on tax issues.
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I think we should simple align ourslves on other European countries. In my view, residence should be the only basis for taxation, not passport or domicile.
A good start would be to use the rules used in France for residence for example (source: http://riviera.angloinfo.com/countries/france/intax.asp):
1.France is where the main residence or home is (foyer). This embraces ideas of permanence and stability and ignores temporary absences, and is the rule the French authorities will most rely on. If a spouse and children live in France a person will also probably be considered French tax resident even if they work abroad.
2.France is the principal place of abode (lieu de s?©jour principal). This usually means more than 183 days in France in a calendar year. It does not have to be a continuous period of 183 days; this is a cumulative rule assessed over a French tax year (1 January to 31 December).
Even if a foreigner spend less than 183 days in France, they may be tax resident if they have spent more time in France than in any other country.
Days of arrival and departure count towards the cumulative total of days spent in France.
3. A person’s principal activity is in France, for example, their occupation is in France (whether salaried or not); or their main income arises in France (whether salaried or not), unless they can show that such activity is purely incidental (?†titre accessoire).
4. France is the country of a person’s most substantial assets (centre of economic interests). This means if France is the place of principal investments, or where assets are administered, or from where a larger part of income is drawn.
Anyone caught by these criteria would be subject to worldwide taxation. And that would be it. Domicile could be used in non-taxation matters, such as conflicts of law and distribution of estate, but no longer to determine taxable basis.
The concerns I have wth taxing on a passport basis are:
1. It’s too far from the current standard to be envisaged as a solution. Whereas it’s a desired outcome or not, changes (in my view) would need to be incremental
2. Non-UK residents do not benefit from the spending of tax proceeds in the UK, and a perception of unfairness would be used to lobby agains tthe idea.
@Hum…
Thanks
I appreciate that contribution – and think it puts forward another viable idea
That’s valuable