So, George Osborne wants to change the tax arrangements of non-domiciled residents.
Bit of a problem really that CCHQ staff think the following then:
A change in the tax status of non-domiciled resident individuals will devastate the London shipping business centred on the Baltic Exchange, cost thousands of City jobs, destroy London’s position as the international centre for shipping, undermine its ability to attract key foreign personnel in all its other areas of activity and result in a lower, not a higher, tax take for the Exchequer.
And who is it that thinks that? Well, it’s a quote from the Evening Standard approvingly reproduced in a document with Gavin Barwell’s name on it (he’s the man who runs the Ashcroft-funded Conservative key seats operation).
Ooops.
Oh ok … I admit it. This document isn’t from this week, but rather from a previous CCHQ produced glossy colour leaflet attacking the Liberal Democrat tax plans. As I type this, it’s up on the Conservative Party website.
Perhaps time to remove it, do you think? Though if they do, you can still get it from my copy here.
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20 Comments
Surely it depends on HOW they change the tax status, seeing as George Osborne’s current proposals have never been put forward before.
If you read the document, you’ll notice that it refers to ‘abolishing’ non-domicile status, whereas George Osborne will just ask each person to chip in £25k and they can keep their status. Completely different proposal = completely different outcome.
Nice try, but check the small print next time.
I am going to bludgeon y’all over the head with some detail because I wouldn’t mind seeing some proper discussion of this point. Good luck:
(1) Domicile and residence are not the same thing. The group of people under discussion are those who were born outside the UK and so retain a foreign domicile but are resident here. (Very) broadly speaking, they get their UK earnings, UK investment income and UK rental income taxed here, any overseas earnings are normally but not always taxed here, and any investment income is never taxed here UNLESS they “enjoy” (i.e. import and spend it) here. I labour this point because Captain Darling demonstrated a poor grasp of it on the news last night when he said “we’re not talking about people who live in yachts on the Caribbean.” No, because they lived here, which is why you’re on the news talking about it. I think he must have been confusing non-domiciles with people jiggling their residency pattern. Different thing. Don’t slouch, Darling.
(2) Captain Darling was however correcting in saying that non-domiciled status and untold investment wealth do not necessarily go together. HMRC booklet IR20 (72 pages, go on, I dare you) discusses the case of foreign oil workers on UK rigs for example – they are UK residents because they spend years at a time in UK territory, so their earnings (normally) are taxed in the UK, but it would be extremely unfair – and probably a breach of sovereignty – if their savings income abroad was taxed here as well – domicile is the system that currently prevents this.
(3) It is also very difficult to lose the domicile status you acquired at birth. I used to have plenty of non-domiciled clients who had lived quite openly in the UK for forty years but whom the law still considered to be non-domiciled.
(4) It is however, true that domicile status is cynically used to rearrange tax affairs to the very limits of what is permissible and sometimes beyond. I came across people like this all the time. The problem was often one of familiarity breeding contempt. They got into the habit of thinking they needn’t tell us about overseas investment income, so they didn’t tell us even when they brought that income to the UK. And there was only so much we could do about that other than pore over what bank statements they did give us like Hercule Poirot and exhort them to please, please report everything. And you have to remember that only 0.5% of our clients at any one time actually read our letters. On one memorable occasion I only realised that one of my non-doms must have brought overseas income into the country when he bought a Ferrari and none of his UK bank accounts moved.
(5) Here is where I stop being impartial. A flat tax of £25,000 on all non-domiciles is surely the most ridiculous tax non-policy ever. It’s laughably simplistic, obscenely unprogressive, virtually unenforceable and yes, it will drive a small number of individuals into abject poverty. Sorry, but that’s just true. It’s rather like proposing a bouncy castle extension to Hampton Court Palace. The taste it leaves in the mouth is that someone was told, perhaps last weekend, to come up with a quick pretend “tax on wealth” that would be easy to understand and require no new administration. So they started reading IR 20, got bored, and came up with a round number. It’s true that tax advisers with decades of experience have trouble with the concept of domicile so I am not surprised that policy makers get put off. But really, you can do better than that, can’t you?
Sorry for the length of this. It’s just that I did this crap for a living and i don’t see why others shouldn’t suffer.
You don’t need to be born outside the UK to be Non Dom. It is therefore not worth reading the rest of your screed is it Alix?
I can see from the front page that Chris Paul has commented here as well but I appear to have sat on him and concealed him from view…
Ah, that’s better!
No, you’re quite right, you don’t need to be born outside the UK, UK-born people can acquire other domiciles by moving abroad and acquiring sufficient ties etc with their adopted country. I used to do that for people as well. But it’s irrelevant here because the group in trouble as a result of the £25k measure are the non-doms who were born abroad and are hence going to find it more difficult to change their domicile status. Those who were born here and have become non-domiciled could easily revert to their original UK domicile – but of course they won’t because they’re on the Costa del Sol and don’t care about lumpenly inelegant Tory tax policy. I could have made this point above but didn’t want my screed to get any longer than necessary precisely because I knew it was challenging to the attention span as it was.
So, in answer to your question, yes, it is worth reading it, because I am sure I have got some things wrong and I want to know about them. Try again.
Come to think of it, I suppose that’s why I said “The group of people under discussion are…” and not “The definition of a non-domicile is…”
But I can see how this would be easy to miss on a skim-read.
None of this, of course, would matter one iota if we were a Single Tax system. Lakshmi would pay his multi-million pound a year tax on each of his two or three UK homes or lose them and would then not have to worry about paying anything on income from anywhere else.
Millionnaire’s Row by Kensington Palace Gardens would probably yield over a million a household a year, with the top fifth of all property in Kensington & Chelsea Borough averaging about £100,000 per household per year, whilst median home value households in poor old Blaenau Gwent wold be paying about £3,500 a year per household.
Hi Alix
Can we pick your brains? Would the flat rate £25k apply to, say, a Filipina nurse in a hospital flat sending most of her income back to her family? Or a live-in nanny from the Ukraine doing the same? Surely there must be some kind of income threshold for the Tory proposal or else it is madly regressive.
Good point Bridget. Alix: is every Polish plumber and Lithuanian cleaner non-dom? Is this an anti-immigrant policy in disguise?
Surely the “income threshld” is essentially voluntary. If you have enough income *sourced abroad* (what you earn in the UK is being taxed by HMRC anyway) that you think the UK authorities couldd ever find out about that would be enough to declare it and pay only £25k on rather than have it fully assessed and liable for a higher tax bill, that’s what you would do. It’s no more than an expensive “honesty box”.
Hypotheically if you plumber or nurse were sending enough money back such that one day the interest they gained (assuming they’re not actually sending it back to feed their family anyway) on it came to more than £62k then yes, it might pay them to opt for this scheme.
However I read last night an article that suggested that following a ruling in the case of Inland Revenue versus Mohammed Al-Fayed some years ago that this kind of thing it probably illegal anyway – effectively you’re taking a back hander to not bother looking into all their other sources of income. It does sound like graft to me too.
Conservatives condoning corruption? Quelle surprise!
Bridget et al; isn’t the whole point about the non-dom issue that the Tories are saying if you want to keep your non-dom status (ie pay no tax on income earned *outside* the UK) then you’ll have to pay a one-off £25K. If you don’t want to pay that one-off £25K then your overseas income will be taxed – so it won’t affect money earned within the UK which is taxed as normal . . .
. . . and so Polish plumber or Lithuanian cleaners are not affected. Unless they’ve also got an income from abroad / investments they’re not benefitting from being a non dom
Honestly, I whine that no-one wants to play tax with me and then I disappear for half a day. Sorry.
Bridget, from what I know of the Tory “policy” at the moment the answer is yes (stop spluttering Grammar, I’ll get to you in a minute) the nurse is liable for that £25k. That’s conditional on my seeing the policy document – assuming one exists. Presumably the Tories’ idea is that she’ll happily surrender her non-dom status to escape it. This is unlikely to have much practical effect on her affairs because:
(a) she’s working full time in the UK and overseas earnings are not in point (thank god, because they’re a whole set of subtopics unto themselves)
(b) savings income from abroad is likely to be small if we are assuming the common scenario that she’s here to earn and send money home.
HOWEVER domicile is a legal concept, and NOT a definition created for the purpose of tax. The idea that you can just tick a box on a form and become domiciled in the UK runs contrary to the whole concept. And if you do tick that box there are massive implications for all your future earnings wherever they are, for your inheritance tax position and your position under international human rights law that I can’t even begin to conceive of lest my brain explode and take this thread with it. “Becoming” domiciled is neither as simple nor as neutral as Grammar is implying. Ironically, what the Tories clearly believe is an easy add-on would actually, if effected, warp the whole domicile system beyond recognition, to the point where you might just as well sweep it away and start again – which is exactly what the Tories claim would be so disastrous.
One practical point: I imagine that at the moment the Filipino nurse is not being issued with a tax return, despite the fact that she is a non-dom. The chances are she has slipped into PAYE, and doesn’t have – or “enjoy” any other income that is taxable. Please do let me know if you know otherwise, but there is a strong streak of pragmatism running through HMRC decisions that I always rather admired, and I’d be very surprised if they are issuing tax returns in bulk to a huge class of people whose revenue is unlikely to even pay for the paper they’re printed on. If this madness was enacted, HMRC would have to start issuing those returns in bulk, and my guess is the Tories would have trouble persuading them it was a good idea (because it bloody isn’t).
I’m not implying that the Tories should or could do what they want with non-doms – merely pointing out that the Tories £25K payment is supposed to be to maintain the tax advantages on overseas income (yes, yes, technically you’re a non-dom or not, tax advantages are distinct).
I guess the “logical” application of the policy to non-doms who don’t get the tax advantages because they don’t have overseas earnings worth taxing, but who pay PAYE, is that they would automatically be opted in/out (shake it all about) in the same way anyone who chooses not to pay the £25K would be. Ie they’d technically pay UK taxes on any small overseas earnings as well as on UK earnings, which they pay already.
So to come back to Bridget, I don’t think we could go around saying that the new Tory policy would make Polish plumbers or Lithuanian cleaners pay £25K a year, as UK income earned by non-doms is already taxed and the £25K payment is only in return for not paying tax on overseas incomes (hell, why am I defending Tory policy here!) [Alix, I don't think we're really in disagreement here]
We are in tranquil agreement in all things – save one. I reiterate the fact that you just can’t (under the current system) “opt out” of being non-domiciled. The technical upshot (and I am catastrophizing here somewhat) is that people would be forced to pay £25k. Ridiculous, and won’t happen, but the tories would have to change the way domicile is treated to achieve that, and that’s what they’re supposedly so dead set against, per Mark’s original piece.
I also think Jockox makes a good point @ 10 re: corruption. The tax system is supposed to tax people, it’s not supposed to take payments in return for letting people keep tax advantages that could be worth huge amounts more than the payment.
Actually, coming back to Tim’s point, there is a sense in which this is anti-immigration. If people come here to work and send money home, then they probably are stashing it away in savings abroad somewhere. Supposing they do somehow “opt out” of their non-domicile after the Tories have messed with the system a bit, and declare those savings for tax as UK domiciles. Once that money starts being taxed in the UK even if it never touches these shores and once their whole inheritance (when they’ve scraped one together through working their arses off) also becomes subject to UK tax law through their domicile status change AND they have to start doing tax returns as soon as they’re earning, then yes Britain will look a lot less attractive.
You’ve got a point about Tim’s point; but you’re wrong in suggesting that we disagree about opting out of being non-dom: it’s clear you can’t. To be fair I don’t think the Tories are saying you can, merely that you will opt out of the tax advantages applicable to non-doms unless you’ve got a spare £25K . . . and now I shall return to writing literature to harry our useless Tory MP and squeeze the soft underbelly of his erstwhile Labour challenger.
Reading Labour’s version of the non-dom tax proposal http://www.hmrc.gov.uk/pbr2007/pbrn18.pdf there is no mentioning of actually changing the non-dom status if you don’t pay the 30k, only that you cannot use the remittance basis of taxation, i.e. for other legal purposes you can remain non-dom as I see it.
So there isn’t! Accordingly I award Captain Darling my much sought-after “Not As Stupid As The Other One” Ribbon of Merit, though I doubt future tax students will be as grateful for the extra layer of complexity.
So that just leaves (a) the utterly nonsensical AND arguably illegal flat-rate levy as the price of keeping the remittance basis and (b) the massive cost of the extra administration involved in issuing the extra returns (or whatever) which is likely to be prohibitive, plus the inevitable wide difficulties that will flow from non-English speakers being confronted with complex forms. And it throws up a new question – why have they incorporated our time limit (though shortened to 7 years)? Is it to ensure strict fairness in policy-stealing ratios?
Although I can tell you, by the way, why they’ve made it £30k and not £25k. Apparently, the average tax currently paid by a non-dom in this country is £26,800. Whoops.
Incidentally, it was put to me the other night in that well-known think tank, the pub, that this was the reality of the Tory plan as well – i.e. that remittance was at stake, not domicile status. Now, all the press releases of the day talked about domicile status, but then they would because it’s easier to understand, and to be fair it was spun to them this way. I have yet to find any actual policy document from Tory HQ to illuminate matters. Can anyone help (or would anyone like to write it)?
I think I’ve done enough of that, ta.
Any views on what would happen if a non-dom has been here for more than 7 years and choose not to pay the 30k, would he then be able to remit the overseas income from previous years free of tax thus making it clean capital.