The Chancellor has performed yet another climb-down from his Pre-Budget tax proposals made in October last year, as a ‘clarification’ of proposals to tax non-domiciles was announced in order to correct previous ‘misunderstandings’.
Following fast on the heels of the Capital Gains Tax debacle, this most recent retreat makes the Government look thoroughly foolish. Once again it is painfully obvious that ministers hadn’t thought through the implications of their own policy plans.
The Liberal Democrats were the first party to highlight serious tax avoidance abuses by non-dom residents, and called for non-dom status to be limited to a specified number of years. We have argued for some time that non-domiciled status does provide some unjustified tax loopholes. But the flat-rate charge proposed by the Government and the Conservatives is not the way to end this scandal. A poll tax on non-doms would be prohibitive for the large number of non-domiciles of modest means, but would be a flea bite for the fat cats. The Tories’ charge would probably seem to Mr. Abramovich not much more than a round of drinks at half time at Stamford Bridge. Even Digby Jones, the Trade Minister, confirmed this week that the Chancellor’s proposals were counter-productive and damaging to the British economy.
The Government has made an unholy mess of this issue. British taxpayers simply do not understand why they are subject to the 40% top rate whilst non-doms living in Britain should pay little more than Council Tax on houses worth millions. Super-rich non-domiciles should be allowed their tax-free status for seven years, but after that they should be treated in the same way as other British residents and made to pay their fair share of tax.
Vince Cable is MP for Twickenham and the party’s Shadow Chancellor of the Exchequer
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17 Comments
… or, we could advocate a Land Value Tax that would neatly charge the mega-rich non-doms more than the modestly-rich non-doms…
sanbikinoraion got there before me…
LVT seems to me like the best solution.
Damn you both! That’s *my* job!
🙂 But good to see people fighting over mentioning it first…:)
Er…?
Many non-doms live in leasehold flats in Kensington and Westminster.
How would LVT hit them?
Soak the Duke of Westminster and the Earl of Cadogan. Now I’d be well in favour of that!
Hm. While generally approving the principle of taxing wealth rather than income, I don’t think there’s anything especially helpful about LVT here. Non-doms, even long-term non-doms, may not own property in the UK, especially if they are at the richer end of the spectrum. People with international assets and several homes are going to shift their capital investment around where it works best for them. They won’t have the same objection as a modest-income non-dom to paying an astronomical rent if it’s worth their while in terms of, say, a vast banking salary – in fact, anecdotally that’s pretty standard in the banking industry. The idea that renting is money thrown away and that purchase it always to be preferred is peculiarly British; if LVT was levied on non-doms I would expect most of them to sell up and the luxury rental market would go through the roof.
LVT would catch a non-dom when they have decided to “settle” in this country, and the seven-year rule would do that just as effectively, without discriminating between those who do own property and those who don’t.
Damn, Sesenco’s beaten me to my point as well. Clearly a number of liberal mindmelds are taking place.
Er, Alix, wouldn’t the landowner then just pass on the cost of the LVT in the price of the rent? The bill has to be paid somehow…
Leasehold flats are not so much of a problem actually to LVT, since the tax would usually fall on the person with the beneficial interest in the property, which, for the period of the lease, would be the leaseholder. At least proportionately. Also, it can be predicted that an LVT will decrease the incidence of leasehold – if the freeholder is only collecting money he has to pass on to the government anyway, why bother?
But in any case, there is in my opinion a quite different angle on this, and one that I think is likely to grow in importance. It is increasingly possible for people to earn money in different jurisdictions, to transfer assets between jurisdictions, and even, in the not too distant future I would predict earning without cash changing hands.
It will be increasingly difficult for tax authorities to follow the money trail of ever more of their citizens (let alone non-doms) in order to be able to tax their incomes. The one thing the state does have, however, is terriroty and within its territory usually some form of protection for the exclusive user rights to occupy land, so notwithstanding all the other touted benefits of LVT, ultimately one could see a situation in which land is all there is on which to base a fair tax system since anyone vaguely financially astute will find ways of hiding income, even almost unintentionally./
Something tenuously related that I’ve been wondering about: Was Labour’s Taper relief plan that they abandonned substantially different to ours? I take it our taper relief proposals are still part of our tax switch policy.
Well, the real point is that LVT taxes the value of the site which currently acrrues, unearned, to the site owner. If someone is paying the market rent for a property that is actually including the land rent already. LVT is not saying that non-doms will somehow pay more or differently from anyone else, but by basing tax on site values they will pay the same as everyone else on the same basis, which is what’s wanted isn’t it?
I said I like LVT in principle – so in the scenario of a wholesale movement onto that tax basis, yes, LVT would get filtered through rents for *everyone* and all would be fine and fluffy.
The point I am making is that LVT is not the first thing that springs to mind as a solution to the very specific problem of rich non-doms who have vast tax breaks on their earned incomes, and who generally come to this country in order to make money through employment, not landed income (those that do, of course, already pay tax on that income in the UK no matter what their domicile). There are lots of good arguments for LVT but the non-dom factor is not one of them.
Leasehold, of course, is a form of ownership; I took Sesenco to mean a rental lease.
If only we could find a way of combining LVT, PR and opposition to Trident into one single policy we could truly bore the electorate to death.
Most kinds of occupation of land that involve exclusive possession and the payment of rent are leases, whether the term certain is one week or 999 years. See Street v Mountford (lord Goodhart was on the losing side of the argument!).
Alix – I agree. I thought everyone knew to assume that when I talk about tax I’m talking about an “ideal world” in which we have moved already from income to LVT! The point here being that if we didn’t tax incomes we wouldn’t be so worried about the incomes of non-doms. If they happen to buy property here they should pay for it like everyone else.
We should stop asking just “how much have you got” and instead “where did you get it“.
🙂
In practice no tax is perfect; not even green taxes and LVT. Vince Cable’s point is that the Government’s and the Tories proposals for taxing nondoms are downright bad. Seven years and then normal tax is, as always, not perfect. However it is far less damaging than the other parties’ proposals. Once again, Vince is the competent economic manager in the House.
I retired from the Army in 2005 after a full career of 37 years. My wife was Australian when we married and acompanied me on all but operational tours, thus denying herself the opportunity to have a progressive career and to build a secure financial base in UK. In 2002 the government required her to acquire British citizenship in order to accompany me on a diplomatic posting. We have had just one full UK posting of 3 years in 28 years marriage. She has always paid Witholding Tax on her modest Australian assets, yet is now being asked to pay more – either full UK income tax or £30,000 annually – just to continue living with me in this country. This seems a very clear case of discrimination against those who have served this country – either in the Armed Forces, the Foreign Office or other institutions.
Presumably she’ll only have to pay it when she’s living in the country and has been for 7 years. If you were in the country for 3 years and have now left again, presumably the 7 years would restart when you move back.
Discrimination – if you hadn’t been in the Armed Forces/Dip Service you would presumably be paying tax on all your assets, so hard to see how this constitutes discrimination – can you explain your point further?
Also, part of the basis for charging nondoms is that they use UK public services (the NHS, schools, etc) but under the current system don’t pay for them. If your wife has been living in this country for more than 7 years, it seems to me right that she should be paying tax – but certainly on the basis that any australian tax she paid would be deductible.