I am co-author of the chapter on wealth taxation in this new book:
The book came out of a conference at the World Bank in 2016. A summary of my presentation is here.
The book is important for three reasons. First, for what its authors say. Second, because of the issue it addresses. And third, because the World Bank embraced those issues. In dangerous times that is significant.
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Is it remotely feasible for a wealth tax to be based on domicile? Is it the case that where is currently exists it is on residency?
Why not on domicile?
The UK’s Inheritance Tax is a wealth tax and it is based on domicile.
A UK domiciled individual pays IHT on global assets even if not resident in the UK at the time of death. IHT has incredibly wide reach in some circumstances.
For example look at this slightly contrived but perfectly feasible scenario …
John is born in the Australia to a UK domiciled father who came to Australia for temporary reasons. This gives John a UK domicile of origin.
John’s father leaves shortly after John is born and John remains in Australia with his mother. John doesn’t bother to claim British citizenship or obtain a British passport because he has an Australian one and he lives and works in Australia until he is 65. John has a domicile of choice in Australia so no UK IHT would be due on his death.
John decides to relocate to New Zealand when he retires, in doing so he automatically loses his Australian Domicile and regains his UK domicile of origin. He now needs to live in New Zealand for a number of years to acquire a New Zealand domicile of choice.
John dies a few weeks after he arrives in New Zealand as a result of a freak accident.
John has a UK domicile at time of death and is required to pay UK IHT on his worldwide assets despite having never even been to the UK.
Furthermore if John has a spouse with absolutely no connections to the UK she might need to elect to be temporarily classed as taxable under UK IHT to ensure that John’s assets can pass to her tax free.
Do I really think the tax authorities, banks and other organisations would put together enough information to collect this tax? Not really, but technically the tax is due and payable.
Furthermore under the terms of the UK/New Zealand tax treaty the New Zealand authorities would even attempt to collect and pay the tax to the UK if asked.
Thank you for pointing out that I have done nothing but suggest that a legal basis that exists be used: appreciated
DC take note
UK doms who live and have their assets overseas and pay their taxes where they reside wouldn’t pay. It would end in a massive international political and legal mess. The UK would look almost Stalinist is demanding extradition orders and annexing assets overseas.
It would end up being a tax paid by the middle classes not the wealthy.
You really do need to acquaint yourself with new information exchange standards
Of course by far the the most equitable way to tax wealth is to tax profit on the first property.
Doesn’t have any electoral appeal though.
I argue for it
Cearly I don’t understand the distinction between ‘residency’ and ‘domicile’.
More Googling to do when I get back. 🙂
It is really nice to see that some holes are finally being punched into that bullshit, race-to the-bottom narrative about the ‘mobility of capital’.
Agreed