I have this morning published the latest in my series of proposals that will make up the Taxing Wealth Report 2024.
In this latest note, I consider an issue I have written and even broadcast about for longer than I care to remember, which is the abolition of the use of the domicile rule for taxation purposes in the UK. I have never been able to find any justification for the use of this concept in UK taxation. In 2015 I advised Ed Miliband's team on the issue.
The summary of this note says:
Brief Summary
This note proposes that the use of the domicile rule for taxation purposes within the UK should be ended.
It is suggested that a temporary residence rule should be created in place of the domicile rule for those who come to the UK for a period of less than seven years.
The proposal is made to prevent people being able to secure a tax advantage based solely on their domicile being outside the UK and their ability to afford the fee to do so.
Discussion
The use of the domicile rule in UK taxation provides some people who are tax resident in the UK with an opportunity to secure an undue tax advantage based solely on their domicile being outside the UK and their ability to afford the fee to do so, which last consideration biases this advantage very heavily towards the wealthy. This is very obviously contrary to natural justice, human rights and the basis of equity that should be used within any fair tax system.
As a result, it is proposed that all persons tax resident in the UK should be subject to the same taxation rules unless they apply for temporary residence status, which would not apply for a period of longer than seven years after their time of arrival in the country.
Revenue raising potential
It has been estimated by academics at Warwick University and the LSE that the abolition of the UK domicile rule might raise £3.2 billion in additional tax revenue per annum[1]. This estimate was based on an analysis of the tax returns of those claiming the status. The estimate has to be treated with caution because a temporary residence rule for those coming to the UK for short periods, such as secondees or students, might reduce the tax raised. However, given the widespread recognition of this estimate, it is used here as the best available estimate of the current likely taxation revenue arising as a consequence of abolishing the domicile rule, which abolition is long overdue.
Cumulative value of recommendations made
The recommendations now made as part of the Taxing Wealth Report 2024 would, taking this latest proposal into account, raise total additional tax revenues of approximately £111.4 billion per annum.
[1] https://www.lse.ac.uk/News/Latest-news-from-LSE/2022/i-September-22/Abolishing-the-non-dom-regime-would-raise-more-than-3.2-billion-each-year-finds-new-report
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That LSE report says that “Most of the unreported income and gains (55%) belong to non-doms who have lived in the UK for fewer than five years”. I’m just wondering if your £3.2bn copied and pasted estimate is a bit on the low side if you’re offering 7 years temporary resident status.
I think any figure here has significant parameters for risk
The source report for the £3.2bn estimated additional tax also notes the following:
“We do not take account of the loss of the
Annual Exempt Amount for CGT, or the fact that some individuals are able to retain
their allowances as a result of the provisions of a relevant double tax treaty.”
This means that the best estimate of the likely additional taxation arising which you copied and pasted could be even higher.
Accepted
But the autjors did not over-egg things and nor will I
Another reason for their being no excuses about a lack of money.
Great work Richard. You put the Treasury, HMRC and our craven politicians all to shame.
I don’t see the need for a temporary residence rule. If I go to another country I expect to have to pay taxes in that country.
But for some people temporary residence can be nightmarish because of conflicting tax rules
Of course source income should be taxed
But to mess up a person’s whole pension saving arrangement for a year or two abroad is not fair.
This temporary residence rule sounds like a loop-hole for the tax advisors to exploit. What is the justification for this? Who are the people who require their overseas income to not be taxed in the UK for 7 years?
I live in France, I’m not aware of any such allowance here.
Their income in the U.K. would be completely taxed in the U.K.
So would their gains
But, they would not, fur example, need to cancel all their pensions to comply with all U.K. rules which is a wholly unreasonable expectation and can be horribly penal
That is all this means
And France has such arrangements to the best of my knowledge. They are entirely fair and reasonable for temporary residents.
I think i must be missing something. Are you suggesting that i could live in France for 6 years and not pay tax on my foreign savings and pension income (which is pretty much all of my income).
I’m not convinced the French tax authority will agree to this even if I tell them I’ll be going back to the UK after 6 years.
Not at all
You will be taxed in full on everything you earn in France
But you will not be required to comply with French rules on overseas income for a temporary period if you did not remit it. But is sounds like you do.