I once claimed there were 7 million people in the Uk who were non-domiciled and was ridiculed for doing so.
This video suggests it's about 6.8 million now.
I won't make the obvious comment.
I will state the obvious fact that this should not give rise to a right to preferential tax treatment - but it does. Discrimination on the basis of national origin in this way is wrong. So why does the government do it? And why does it undermine the stability of the UK's labour markets as a consequence?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Richard,
The domicile rule does not distort the UK domestic labor market, because both domiciled and non-domiciled workers pay UK tax on their domestic wages and other employment-related earnings.
Whilst there may in theory be up to 7 million UK resident taxpayers who can claim to be non-domiciled, the rule will only be relevant for a very small majority of them who have substantial non-UK assets.
In practice this is a small minority of foreign nationals, predominantly Americans or educated in the United States (at no expense to the UK taxpayer), and who as a result bring in vastly superior skills and expertise that local workers simply do not possess and have no hope of acquiring.
The only distortion they cause is positive: not only do they create jobs for the UK-born workers (think of all the back-office and other support jobs that Wall Street firms create in London), but the also help locals raise their standards to US or international levels.
I am struggling to see why this would be a negative for the UK economy.
What you clearly show is an absolute lack of understanding of the nature of migrant labour
1/10
Go do some research beyond the world of the City of London (where US bankers are a curse)
Then try again
To Ted – further to your: –
“and who as a result bring in vastly superior skills and expertise that local workers simply do not possess and have no hope of acquiring.”
Oh dear, us poor natives, so unable to match up to the earth-shattering expertise of the good old US of A – a nation that insisted there were untold WMD’s in Iraq, despite all the evidence to the contrary, and tried to prove their existence by displaying Disney cartoons of deadly weapons in the “evidence” presented by Colin Powell the the UN!! I think not.
The domicile rule is of no relevance whatsoever to the vast majority of those who could claimed non-domiciled status because they have no non-UK sourced income So please explain why in this majority of instances the rule would cause any distortion?
You are not maknig any sense.
I’m making total sense:
It’s nonsense to believe people can’t arrange their affairs to exploit domicile rule
Or that it does not favour migrant workers
It does
I know because so many wanted to defend it when I sat on a Treasury committee for just that reason
It’s you who makes no sense
My impression is that you (Ted & Richard) both have a fair point as this highly amoral guide from the Telegraph makes clear:
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7465517/Non-dom-status-do-you-qualify.html
In support of Ted, it argues that you need to have significant non-UK income to really benefit from non-dom status. This is unlikely to apply in the majority of cases and therefore the implied point about millions of people avoiding tax must overestimate the number of people involved (but maybe not the sums of money).
However, in support of Richard, there doesn’t seem to be any good justification to having a non-dom rule in the first place. It does give an unfair break to the very rich and Ted’s point about the jobs etc they bring seems bogus. I’m sure that the tax that is forfeited to these individuals could have been more productively invested in the UK economy.
Even £2,000 a year untaxed is for a lot of people a big bonus
And for seven years it’s whatever you like
But thanks for trying for balance
Richard, please help me out here.
The typical migrant worker these days is an EU national from Eastern Europe with very limited net worth either in the UK or his/her place of origin. In fact, his/her biggest asset travels between his/her ears. He/she earns close to the UK median wage and has no other source of income.
That migrant won’t even file as a non-domiciled tax payer. In fact, he/she is unlikley to file a self-assessment at all, because he/she is below the income threshhold where it is mandatory to do so. These migrants do not appear among the 100.000 or so (and declining fast) resident non-domiciled UK taxpayers.
Could you please explain how they then exploit the domicile rule and distort the labor market.
Frequently because they are in fact dual resident and many do work in more than one country in a year and the domicile rule means they can work here with impunity for part of the year with no questions asked
Of course it’s not all of them
But it’s some
In addition, it can provide small business with an advantage not available to domiciled owners
I’m not saying all 6.8 million win
I’m saying the distortion is big enough to stop it
“Frequently because they are in fact dual resident and many do work in more than one country in a year and the domicile rule means they can work here with impunity for part of the year with no questions asked”
I may undertand where you are comin from. I believe that your point is more related to residence than to domicile.
In any event, have you in the past tried to quantify the amount of tax the UK is “losing” by not taxing the overseas earnings of these UK part-time non-domiciled residents, net of any relief for tax paid to overseas tax authorities. We are talking mostly about low-paid workers (seasonal farming and construction labor comes to mind), so I cannot imagine that it would be very significant
Quantifying this would be nigh on impossible- but HMRC sources have always told me they thought the losses significant
“Quantifying this would be nigh on impossible”
Let me ask the question differently: I see that you have estimated that the elimination of the domicile rule would generate ca. £3 billion in income tax revenues.
How much of this amount would you hope to raise from the c. 100,000 taxpayers who currently file as non-doms, and how much would you extract from the other c. 7 million taxpayers who could potentially file as non-doms but currently do not?
That seems to me a very fair question.
And my answer is I don’t know the split because HMRC published data is now not good enough to repeat the exercise
They usually stop publishing data soon after I have used it
I note today, however, that HMRC is continuing to crackdown on willful tax evasion.
Targeting plumbers.
Easy targets first…..difficult targets when ?
If ever.
http://www.walletpop.co.uk/2011/08/17/five-people-arrested-in-hmrc-unpaid-tax-crackdown-could-you-be/
“Ted’s point about the jobs etc they bring seems bogus”
They must be bringing something (i.e skills) to the UK or large companies wouldn’t employ them, they would just choose home labour.
In fact, ignoring tax for the moment, Trevor’s and Richard’s argument that they bring nothing in terms of additional skills etc is actually an argument for a completely closed door immigration policy.
The basic principle of the remittance basis is entirely reasonable. If I go to work in France for a temporary period and let out my UK house in the meantime, why the hell should France tax me on the rental income if I don’t spend that any of that income in France? Tax me on my French salary, fair enough, my duties are performed in France and I spend my salary in France, no reasonable person is going to disagree with that.
The key point has to be that a visit is temporary and that they otherwise have no connection with France otherwise. Obviously you have to tax nationals on worldwide income otherwise people would invest offshore. But for people who come to a country temporarily it makes no sense to tax people on investments made well before they came or out of income already taxed in their own country.
The UK should have a system whereby people staying for less than, say, 5 years are not taxed on overseas income/gains. Anything longer than 5 years then they become liable to tax on worldwide income and gains and all previous 5 years’ Returns are reopened and computed on a worldwide basis too.
I have actually suggested 4 years….
I can live with that for the reasons you note
After that, I think it’s worldwide income – integration is sufficient to require it by then
And most secondments are less than 4 years
And students aren’t here that long
If one comes here to do an undergraduate degree and wants to do D Phil it takes a lot longer than 4 years (even a Ph D at a decent second-class university should take 6 or 7 from starting a BA).
Also, the video does NOT suggest that there are 6.8 million who are not UK domiciled are all those who are UK Nationals who reside in the UK are UK-domiciled including those born to UK citizens working overseas who return home. As the guy says, 38% of workers born outside the UK are UK Nationals – of course one cannot gross that up because most students born outside the UK are foreign nationals but if one assumes that students aren’t earning enough to pay tax, then the video suggests that your 7m figure is twice any realistic estimate.
Nationality has nothing to do with domicile
And candidly if you study in the UK for six years you should pay tax here
I stick by my broad estimates
The quote you took “Ted’s point about the jobs etc they bring seems bogus” was taken out of context. Ted’s post implied that special non-dom tax allowances per se would increase UK employment. This is different from the idea that foreign nationals (the individuals not their tax arrangements) enhance UK competitiveness.
Foreign nationals make a massive contribution to the economy and should be strongly encouraged to come here. However, if they are to all intents and purposes based in the UK (based on reasonable residency rules), they should contribute like the locals.
“The basic principle of the remittance basis is entirely reasonable. If I go to work in France for a temporary period and let out my UK house in the meantime, why the hell should France tax me on the rental income if I don’t spend that any of that income in France?”
Replace “France” with “the US” above and the result is ugly.
If you go to work in the US for a temporary period and let out your house in the UK, you will have to pay both US federal and (likely) US state tax on the rental income. Income that you don’t remit to or spend in the US. Even worse, that income will fluctuate with the exchange rate. If you sell your UK house while in the US you’ll have to pay full US CGT on the entire gain from the date you bought it, even if you bought it four decades before moving to the US. And if you saw no GBP gain on the house but a phantom USD gain due to fluctuating GBP/USD exchange rate over the period you owned the house, guess what — you have to pay full US CGT on the phantom gain.
That is what not allowing remittance basis gets you. Needless to say, the US gains nothing from this policy. Temporary workers in the US either sell up before moving there, or wait until afterwards. In the worst cases a high potential US CGT liability motivates temporary workers to leave the US early where they might otherwise have stayed.
Oh, now I know why the US is failing
Or alternatively I know a little more about your paranoia
Paying tax is the price you pay for living in a place
The US let you in. You pay the tax. Your choice
“In practice this is a small minority of foreign nationals, predominantly Americans or educated in the United States (at no expense to the UK taxpayer), and who as a result bring in vastly superior skills and expertise that local workers simply do not possess and have no hope of acquiring.”
Ted Baumann:
My experience (in the City) of Americans working in the UK is that they are generally insular, ignorant and rather simple-minded. The institutions for which they work that want that same skill-set will recruit only US nationals. If those can be regarded as vastly superior skills and expertise, then I admit we don’t generally possess such skills and expertise in the UK, and indeed I would posit that we have no wish to acquire them.
Some, but not all Americans; also not all US institutions only hire US nationals – some of them hire the brightest hardest-working staff they can find – I knew a Russian who worked for Goldman Sachs.
The whole taxation around migrant workers coming to work temporarily in the UK is immensely complicated, but does seem to be discriminatory against settled workers.
The Social Security (Contributions) Regulations 2001 section 145 (2) exempt foreign seconded workers (and their employers) from national insurance contributions for the first 52 weeks. NIC is just a hidden tax that mostly goes to the NHS (over 20%) and to pay current pensions (over 60%). I don’t think this exemption should exist.
There should be fair and sensible Totalisation Agreements between countries, but that is a minefield in itself.
I would also be in favour of NIC being cut as much as possible and shifted to income tax, but again there are complications around a number of area.
Are you seriously suggesting that someone with no income should pay tax here because his/her father is paying our schools/colleges/universities a full unsubsidised set of fees so that he/she can study here?
If they have income that would give liability of they had been born here yes, of course I am
It’s called equality before the law
And it’s really not hard to comprehend
I can’t understand the council tax exemption for non-EEA students at UK universities.
It is a subsidy to UK students, but why extend it outside that.
Non-EEA students are unlikely to make a huge tax contribution to the UK except on VAT on their spending (which may be minimal for many). Student fees are not taxed or “vat’ed” and universities are non profit making so no corporation tax.
As for their contribution to university finances, the Migration Advisory Committee’s report on tier 1 visas in 2009, that the government commissioned, had some interesting information. Non-EEA students contributed about 8-10% of university income but made up about 16% of full time students. They were also more concentrated on more expensive courses e.g. lab based, medical/vetinary and MBA courses.
Of course that was based on 2007/2008 figures and since then the amount charged to non-EEA students has increased by about a third for many courses e.g. it used to typically be around £6-10k and is more like £10-15k for many courses (excluding I think medicine and MBAs which are more in the region of £25k to £30k).
Have I missed a point? The video discussed Uk-born and non UK born. It did not appear to mention domicile for tax purposes. I am non-UK born but am domiciled in the UK. The figure of 6.8 million was for non-UK born workers of whom a significant percentage could be considered migrant workers. There may well be millions of non-domiciled people in the UK avoiding tax, but I don’t think that is what the ONS video was addressing.
I was using it as supporting evidence
I never said it as categoric proof
You said in reply to John77 that “Nationality has nothing to do with domicile” yet you admit to using the video “as supporting evidence”.
There are about 26 million people in the UK who pay income tax. If you are correct that roughly 7 million people are non-domiciled then you are effectively saying that over 25% of UK taxpayers are non-domiciled. I highly doubt this is the case.
I prepare tax returns for a range of individuals in North London from relatively small self employed traders to pretty wealthy financiers. In all honesty, the proportion of these who we claim non-domiciled status cannot be much more than 5%. And this is in practice, for people who need Returns prepared by an accountant. So the actual proportion for all taxpayers including those who do not have sufficiently complex affairs to warrant using an accountant, is presumably even less.
You ignore the fact that only 25% complete returns
And that domicile encourages abuse without questions asked