I wrote this blog in March 2007. I might update it a little now and clearly some data has changed, as have some aspects of non-domicile law regarding tax payment, but the core of the message remain right in my opinion, so I offer it again (note some links may not work due to the passage of time and I do not have time to update them now):
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Tax Research LLP has today published a new report in association with the Tax Justice Network in the UK. Entitled ‘National Origin, Equality and the UK's Domicile Law as it relates to Taxation' this is a contribution to the protracted debate on the future of the UK's domicile laws.
Put simply, the report makes clear there is no basis for that debate. These laws discriminate between people living in the UK on the grounds of their national origin because that is the basis on which a person's domicile is determined. Since 2003 discrimination on this basis has been illegal under the Race Relations Act. It should however be stressed that ‘national origin' is not the same as race, ethnicity or nationality. It is defined by the Commission for Racial Equality as:
‘National origins' are not limited to ‘nationality' in the legal sense of sense of citizenship of a nation state. The Scottish Court of Session has defined ‘national origins' as ‘… identifiable elements, both historically and geographically, which at least at some point in time reveal the existence of a nation'.
This is the precise point about domicile. This term is not defined in UK law, but broadly speaking a person is domiciled in the country in which they have their permanent home. That is their place of national origin, irrespective of their race, ethnicity or nationality. It is the fact that both terms rely on this differentiation from race, ethnicity and nationality that makes clear they relate to the same concept — a person's natural home and community of association. Indeed, it is precisely these factors that the revenue looks for in determining domicile.
In so doing HM Revenue & Customs contravenes (even if unwittingly to date) the terms of the Race Relations Act 1976 and the Race Relations Act (Amendment) Regulations 2003. In law this constitutes unlawful indirect race discrimination which 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 provision of agreeing a person's tax liability to be lower than that which might otherwise be the case is the service that affords a person of national origin outside the UK with a social advantage over a person whose national origin is in the UK. We doubt very much that people will disagree with the idea that paying less tax is a social advantage and although discrimination against a majority might seem odd, it has a clear precedent. Women are, after all, in that position.
According to reports of the Revenues own estimates the tax saved is at least £1 billion and their own calculations suggest that this is an average reduction of at least 16% on the tax bills of those not domiciled. Many believe the estimate of the tax saved far too low: there is no reason for a non-domiciled person to report this data to the Revenue and as such any data they hold is bound to be an underestimate. The loss to the UK could, therefore, be much higher.
Awareness of this situation presents the government with three options:
1. It can seek to ignore its own law, and continue to discriminate as it is clearly doing at present;
2. Those of UK domicile must be provided with the same basis of taxation as those who are not domiciled in the UK, or
3. Those who are not domiciled must be given the same tax status as those who are domiciled in the UK.
The first option can at best be a short term solution, and hardly a desirable one at that. The second could not be afforded so the third option is the only one available.
The domicile laws must go.
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i’m confused
tax avoidance is getting round the will of parliament, but non-dom status is specifically legislated by parliament , so claiming it must be being tax compliant ? ?
I am asking to change a bad law
I am not accusing anyone of anything bar governments who have maintained discrimination
The Race Relations Act is law too. It is contradictory.
I think you just jumped the shark.
Let’s put aside the fact that national origins and racism are two distinct concepts. This also holds true in terms of the law.
For tax purposes, non-domiciled status is clearly defined as spending no more than 90 night per year in the UK.
What you are really advocating is a passport tax – that all UK citizens should pay tax on their global income, despite not being resident in the UK. You are also saying that all non-UK citizens resident in the UK should be paying the same – even after they leave the UK.
HMRC themselves state:
“Broadly speaking, under English law a person is domiciled in the country in which they have made their permanent home.”
“Domicile is separate from other connecting factors such as nationality or
residence. So, it is possible to be a national of the UK, resident (say) in
Spain but domiciled (say) in Jersey. However, nationality and place(s) of
residence will be relevant facts to consider when ascertaining a person’s
permanent home.”
Nothing to do with race. To suggest so is pure hyperbole. If you thought you had a real case why not do something about it via the race relations act?
You clearlybcan’tb tell the difference between residence and domicile which makes all you say utter nonsense
If I was a teacher with would be D-, do again and get your facts right
I see you are once again not answering my points, and resorting to ad hom attacks. As someone who has lived and worked on four different continents, residency and domicile are something I am pretty much forced to understand.
Clearly, for tax purposes as defined under English law, domicile is what matters.
It is very common to be born in one country (national origin and normally passport) be resident in one or more countries (I have permanent residency VISAs for a couple of countries as well as the UK) but domicile is normally defined by the person’s permanent place of residence. Note that domicile is a function of residency.
You are essentially saying that people who don’t LIVE in the UK should pay full UK taxes. So a UK citizen living in Switzerland and paying tax there should also pay tax in the UK – because otherwise UK taxpayers are somehow being cheated.
Of course, were you to take this to court, the Swiss domiciled chap would simply throw it straight back at you with exactly the reverse argument – now he is being treated unfairly in comparison to UK domiciled people as they don’t have to pay the Swiss taxes.
Quite honestly, I don’t know why you have made the long and convoluted (and legally incorrect) argument trying to link non-dom status to human rights. Try running this one past Jolyon Maugham or similar.
The law is clear. If your permanent home is in the UK (defined by spending more than 90 nights in the UK), you are subject to all UK tax laws – irrespective of your place of birth, passport or race. If you live outside the UK, you aren’t.
You don’t see why I wrote it
I do
From there on everything is a point of difference of opinion
I think domicile abuses human rights
You don’t
I can think of no version of human rights that says discrimination on the basis of an accident of birth is acceptable. Show me one that does
Domicile, in English Tax law, has nothing to do with human rights. It is simply a question of spending more than 90 nights per year in the UK. It has nothing to do with country of Birth or passport held.
Given this, domiciled and non-domiciled people are not discriminated against on grounds of race, creed, colour or nationality. It is simply a test of place of permanent residence. You are or you aren’t. Claiming that it is racist is simply absurd.
As I say, what you are really arguing for is a passport tax, but are obfuscating this with a ludicrous argument about racism and human rights. If you feel you are correct, please go ask a few human rights barristers. Better still – start a case and challenge the law directly, rather than just writing hyperbolic statements on your own personal blog.
Are you denying my human right to link the two?
I want a passport tax
But that is not the argument here
“I can think of no version of human rights that says discrimination on the basis of an accident of birth is acceptable. Show me one that does”
Of course, taxing emigrés on the basis of citizenship, as you and me both rightly and openly advocate, necessarily results in discrimination on the basis of accident of birth – and that is good and proper, and the only way to end the disasterous NeoLiberal experiment in free movement.
Such a rootless cosmopolitan would necessarily treated worse than a citizen-resident of either country, since all countries tax different things at different rates and with different exemptions. The emigré is thus exposed to the highest tax rates with the least exemptions, and must also bear any currency risk.
But it would be un-Progressive to think of this as “discrimination”. On the contrary, it should be celebrated as a way to prevent emigration and to encourage people to return to their country and domicile of origin by imposing substantial financial penalties on being abroad.
This is nonsense
We have tax treaties to deal with that
“This is nonsense
We have tax treaties to deal with that”
I don’t think so. The UK’s current tax treaties (except with the US) prevent taxing people based on citizenship since they base it on residence. So they have to be changed. The US treaty contains the so-called savings clause, permitting the US to tax its citizens as if the treaty did not exist, so for them there’s no recourse to the treaty. It’s the cleanest solution, and is why Boris had to pay capital gains tax on his house sale – not taxed in the UK, no recourse to the tax treaty.
Also, some countries quite rightly tax wealth – for some bizarre reason the UK does not. Other countries should be able to tax the wealth of their citizens in the UK. The current tax treaty does not deal with this.
I admit I have lost your plot
What are you trying to say?
I am trying to say that if we are to expose emigrés to both their home system and to the local system, which we clearly want to, it is not possible under the current tax treaties. These thus need to be changed.
Once we’ve fixed that, in cases of incompatibilites between the systems, e.g. wealth tax / no wealth tax, different tax-free allowances, non-recognition of foreign pension schemes, treating (or not) the rental value of a house as income, etc, then an emigré will almost always end up paying more than a citizen-resident of either country. In almost 100% of cases they will pay more than a citizen-resident of one or the other, since no two systems are entirely comparable.
E.g. if their residency-country doesn’t e.g. tax wealth but their home-country does (or vice-versa), then they need to pay that on top – there’s nothing to “credit” against, and there is no way to structure a tax treaty to credit dissimilar taxation products like that.
This is how it works with the US – there’s all sorts of things in the UK (Employer’s NI, Employer’s pension contributions, interest in a pension plan, capital gains on the sale of a primary residence) that the US considers to be taxable in the US for their citizens.
It’s easier to look at from the other perspective though, since it’s the UK that is unimaginative in its taxation. As a result, it is a tax haven for many things – no real gift tax (with the exception of “potentially-exempt transfers”), no proper inheritance tax paid by the recipient and not the estate, internationally very high personal allowances (low-middle incomes in the UK are undertaxed compared to many Euopean countries), no wealth tax, no taxing rental value of your house, and so on.
As a pretty simple example, imagine a Dutch emigré living in the UK and being given a new car for their 18th birthday (a common coming-of-age gift amongst the upper middle classes, I am led to believe – I am however of much humbler stock) – they are avoiding a quite hefty Dutch gift tax on that car by living in the UK and not in Holland. This sort of petty, low-level tax avoidance has to stop.
Anyway, my point is that such increased taxation on emigrés is a good thing, and should be welcomed internationally.
I do think there are situations where we should double tax e.g. where a person hides in a tax haven and so tries to pay no tax
That apart I generally see merit to taxing once and once only
My version of a passport tax is intended to do that
Oh, I’m a bit confused now – so what you favour is rather more the French treatment of its citizens in Monaco, where there is no income tax, than the US treatment of their citizens everywhere else, where they tax every incompatibility between the systems?
yes
i have never said otherwise
By all means, you have the human right to link the two. Doesn’t mean you are correct though. I know you are a self-appointed tax, accounting and economics expert, but are you now saying you are also a legal expert, with enough experience to challenge long set down laws?
I have the right to do so: of course I have
You have the right to disagree
That’s how progress happens
Would you deny me my right?
I see you have simply deleted my comment.
We are not talking about your right to say things. I have never challenged that right.
We are talking about what you say – which is patent pending nonsense.
Yes, we’ve heard that’s what you think plenty enough times
Which is why you’re now being deleted henceforth in line with the moderation policy. Just as in ‘Just a minute’ repetition is unacceptable here.
But I am sure Mr Worstall will be only too pleased to see you
The cowards way out, again. Just hit the delete button and don’t actually bother answering the questions posed. You simply can’t deal with the idea of being wrong about anything.
If I was a coward I would not write this blog
good to hear
“broadly speaking a person is domiciled in the country in which they have their permanent home. That is their place of national origin…”
Regardless of the rights and wrongs of the domicile rule, this statement does not make sense.
My uncle has lived in the USA for decades and has no intention of ever leaving. The USA is surely therefore his “permanent home”. However, as he was born in the UK, there is no way that the USA could be described as his “place of national origin”.
Simply not true
He has adopted it as such
Just as my family has adopted the UK but clearly came from Ireland
Surely this goes against the very meaning of the word “origin”, i.e. where you come from. My uncle was born in the UK, had UK parents, went to school here etc. There is no way the USA is his place of national origin. The USA might be the place of national origin of his children (who have always lived there), but not him.
You (as I understand it) were born and brought up in the UK, so it would not be unreasonable for you to state that the UK is your place of national origin.
You may think that
I do not
Ed
Your uncle will have a domicile or origin in the UK but may have aquired a domicile of choice, the USA. Changing domicile is not easy, else otherwise it would be easy to ‘claim’ non-UK domicile. The tax authorities would expect a clear breaking of all ties with the UK, such things as adopting US citizenship and handing back your UK passport would be seen as poiting towards a clear break. Holding on to a UK passport or having dual citizenship might suggest that the break was not complete.
Each tax authority is usually anxious to accept it if you claim to be domiciled in their territory but the tax authorities in the country you claim to break domicile from may have other ideas and disputes do arise.
Has your uncle taken professional advice?
This is one of the few things I agree with you about.
The law discriminates against people who live and work in the UK.
The sooner the better in my view.
You should have been a journalist writing sensationalist headlines like that! This will appeal to your fans but it is a bad use of the English language and factually incorrect.
It is, in my opinion, accurate
You can disagree with my legal interpretation but not, I think, my sentiment
That the non-dom rules are discriminatory is self-evident, they are discriminatory by design. Racist by being biased towards minorities? Hmm, you would seem to rule out all positive discrimination there Richard; is that what you believe?
Oh come on
Positive discrimination overcomes disadvantage
Non-Dom confers privilege
Don’t talk crap
But of course positive discrimination is still discrimination.
And of course it is stated in the Race Relations Act 1976 that the Act does not apply to an Act of Parliament – which kind of blows your whole argument that the non-dom rule contravenes the RRA out of the water right from the very beginning.
I discussed this issue in the paper
Try again
Ironman oxidises in public again!
I wish he’s go away and do it in private.
He will be
This distinction between residence and domicile for tax purposes has always seemed to me to be a quirky British arrangement. Are there any other European countries which do this? Here in France, anyone who is resident (as defined by spending more than a given number of nights per year in the country) is taxed on their world-wide income. Which seems pretty logical to me.
Does this non-dom thing lead to double non-taxation? If, say, a French person moves to UK and lives there permanently, he would not be liable for income tax in France while resident in UK. Can he/she then, by asserting an intention to one day return to France, be classed as non-dom in the UK and thus avoid paying tax in UK also? If tht is the case, it is surely manifestly unfair, not only to the UK (which choses to allow it) but also to France if French citizens are enticed to move to UK for a period of years solely to avoid paying tax – is this not unfair tax competition?
Surely it is high time this weird arrangement was ended once and for all?
Ireland inherited it from us
Italy has a vesion
No one else has
We are miles from standard here
As well as the UK, Ireland and Italy, there are India, Pakistan, Belgium, Switzerland, certain states of the USA, Malta, Australia, New Zealand and South Afica that I know of which all have a concept of tax domicile which is different from the concept of tax residence.
There are many other countries who tax their citizens on a world-wide basis but non-citizens or temporary residents on a non world-wide basis, effectively limiting tax to sources from within their country and so effectively putting them in a similar position to UK non-doms.
Richard, if you were not aware of this I worry for any clients you may have had who came from these places.
Paul: I tghink we have the message now. Whatever I say you will nitpick and say I am a lousy accountant, using different criteria from those I am
Given that we can now take this as an acknoweldged fact I think your time here is over
Don’t bother again
Good headline, but section 41 of the Race Relations Act 1976 provides that acts of discrimination made pursuant to other enactments, statutory instruments, etc, are not unlawful. The tax treatment of non-domiciled individuals is enshrined in various tax acts.
Are you suggesting, for example, that we should apply UK inheritance tax to all people, everywhere, without reference to domicile? Perhaps only to UK residents?
Read what I wrote
I agree that the end of agreement to DOM 1 status may change it
BUT the ethcial issue remains
I note you wholly ignore the ethical issue
I did read what you wrote. You said discriminating in tax laws on basis of domicile is “illegal”. It is not, in my view, but by all means bring a judicial review action if you like.
I don’t see mention of an ethical issue in your original post, just a suggestion that UK tax law is itself illegal on grounds of racial discrimination. Is the only possible ethical response to tax people who have no long-term connections with the UK (i.e. non-dom) – and so, for example, might be expected to use the full range of public services, from maternity, through schools, to retirement and death, relying on defence and foreign affairs etc all the time – on exactly the same basis as people who have no such long-term connections?
Oh I see. So this is how the Courageous State will operate? First we assign individuals their group identity. Then we decide whether that group is disadvantaged or privileged. Then we write discriminatory laws to affect individuals according to their assignment. “Four legs good; two legs bad” that sort of thing?
P.S. An Indian, Pakistani or Somali who comes to the UK, builds a business, trade or profession, remits money back to his homeland and keeps that money in the business he has set up: he is privileged is he?
The whole welfare state is about positive discrimination in favour of those disadvantaged otherwise
I have no problem with that
Aah c’mon Richard.
I’ve been doing that for a more than a decade
Never mind oxidisation – he’s having a meltdown now!
Poor chap.
Don’t engage with him Richard – its not a fair fight at all.
‘Forgive him, for he knoweth not what he sayeth’.