Thursday, February 21, 2008



Andrew Ellson in Saturday’s “Times” tells us that “while the Chancellor was right to compromise on his plans for additional disclosure and retrospection, there should be no more concessions to the non-doms … The simple fact is that the tax status that they enjoy is both unneccesarily (sic) generous and unfair to resident taxpayers. Labour’s £30,000 a year levy is not unreasonable”.

Irwin Stelzer in its sister paper the “Sunday Times” takes a somewhat different view. He poses the question “Is it worth risking the effect on London’s reputation as a financial centre and the loss of thousands of highly productive, high-spending foreigners in order to add less than one-tenth of 1% to the Treasury’s coffers”. The Sunday Times also tells us that according to a You Gov poll of nearly 2,500 voters, 60% think that Mr Darling should have toughened up his proposals to tax non-doms more rather than relax the rules.

No one knows how many non-doms there are. Many have little or no UK income and are not required to complete tax returns. Some complete the tax returns that they are sent but do not realise that they need to download a Residence page from the internet. They simply complete what they are sent omitting any reference to their unremitted overseas income. HMRC have told the Chancellor that they are aware of 22,000 non-doms of which they expect 3,000 to leave the UK. Irwin Stelzer reckons there are 100,000 which suggests that around 13,600 will leave the UK. I think there are 10 million. The last census indicated that 1 in 5 of us was not born in the UK. Most of those are likely to be non-dom. So are many who were born in the UK but whose parents were not. So I think that 10 million is probably a very conservative estimate. Of course a lot of that 10 million will not have any overseas income and the overseas income of many of the rest – such as your friendly Polish plumber – could well be below the £1,000 de minimis limit.

But that is still likely to leave hundreds of thousands, if not millions, affected by the change. Of course they will be affected in a different way to the ultra-rich. The “George Osborne/Alistair Darling Stuff the Non-Doms Plan” allows the ultra-rich to purchase the right to keep the current remittance basis (although I believe that George would give them the right to keep the current basis whereas Alistair is much tougher and is selling only the right to use a far more restrictive basis). Accordingly most of the extra tax will not come from the ultra-rich. It will come from those who cannot afford to buy privilege. It will come from the Irish nurse, the Polish plumber, the Indian doctor, the Bangladeshi restaurateur, the overseas students being supported here by their parents, and lots of other working class and middle class people. These are the people that George and Alistair and 60% of the population want to stuff. (Incidentally, assuming that non-doms don’t really want to penalise themselves, that 60% could well be 72% of the 80% of the population who were born here).

So what exactly do George and Alistair and Andrew Ellson want? It appears that:

1. They want to require overseas students with unremitted overseas income of between £1,000 and £5,435 (the 2008/09 personal allowance) and no UK income to complete tax returns even though they will have no tax to pay.

2. They want Asian and African people with a concept of family money (and anyone else who comes to the UK and leaves relatives back home to collect and keep their share of income from jointly owned property) to insist on knowing what their share of such income is so that they can pay UK tax on it. Presumably Andrew Ellson is indifferent to the damage that will cause to such family relations as he appears to think it only right that foreigners should be taxed on income that is nominally theirs but is not available to enhance their standard of living in the UK. (This is of course the origin of the tax rules on non-doms; that it is unreasonable to expect someone who is temporarily in the UK to pay tax on income in his home country that is left overseas to either support his family there, or to fund his eventual retirement there when he returns home, and is thus not available for him to spend in the UK).

3. They think it fair and reasonable that ultra rich foreigners should be able to buy tax privileges that their less well off compatriots cannot afford and which are not on offer to those ultra-rich who are domiciled here.

4. Alistair and Andrew (I don’t know about George) want those who either pay the £30,000 or are in their first seven years of residence here to cope with a tax system on remittances that, with the best will in the world, it is virtually impossible to get right.

5. They (again, I’m not sure about George) want executives of international companies who are temporarily posted to the UK by their companies to choose between paying UK tax on their investment income left in their home country and paying more tax on their UK salaries than their UK domiciled colleagues by being denied their personal allowances – including, incidentally, the special £1,800 blind persons allowance, which is intended to help towards the cost of coping with their disability.

Why do I say that the new system of remittances is virtually impossible to get right? Well what Alistair and Andrew want to do is to treat income as remitted if “property is brought to the UK, or is … used here, by or for the benefit of a relevant person [and] the property … is derived from the [overseas] income or chargeable gains … directly or indirectly”. A relevant person is the individual or a connected person. A connected person includes even the spouse of a relative of the taxpayer’s spouse. So here’s some examples of what is taxable on Mr Non-Dom who has come to the UK from Hicksville, Iowa to open a UK branch for the International Conglomerate for which he works. In all cases Mr Non-Dom has a bank account in Hicksville into which he pays his US income and from which the expenditure in these examples is paid.

a) Mr Non-Dom visits home. While there he draws spending money from his US bank account. He has a friendly bet with his wife’s sister’s husband and the husband wins. Mr Hicksville pays up his $50 loss which the brother-in-law uses to buy a new shirt as a memory of beating Mr Non-Dom. Two years later the brother-in-law visits the UK and packs the shirt in his luggage. This triggers a UK tax charge on Mr Non-Dom on the cost of the shirt because it is brought into the UK by his brother-in-law (a relevant person) it is used by his brother-in-law (a relevant person) and the cost was met indirectly out of Mr Non-Dom’s US income. Mr Non-Dom may well not even know that his brother-in-law has brought the shirt. How is he going to get his tax return right?

b) Mr Non-Dom buys his aged mother a suitcase for her birthday. His mother has never left Hicksville and has no intention of doing so. Five years later Mr Non-Dom’s sister’s husband comes on holiday to the UK. He has never been abroad before and does not own a suitcase so Mr Non-Dom’s mother lends him hers. He has never met Mr Non-Dom and does not even know of his existence. Yet his visit to the UK triggers a UK tax charge n Mr Non-Dom on the value of the suitcase.

c) Mr Non-Dom visits the US and on his way back buys a bag of sweets at Kennedy Airport. He eats some in the airport, some on the plane, some while he is waiting to go through Customs at Heathrow and the rest on his way home. I hope he counted the sweets. The cost of those consumed at Kennedy Airport and on the plane is not a remittance (although the position on the one he was chewing when the plane came into UK airspace is unclear) but the cost of those he eat at Heathrow and on the tube going home is.

Personally I think this is wholly farcical. I do not think it reasonable in a civilised society either to require HMRC to snoop into the minutiae of peoples private lives or to impose obligations on them that are impossible to meet. If Mr Ellson really considers this a “generous” treatment of overseas visitors I suggest that he devotes a column in the Times to explaining how he expects them to comply.

Oh, and actually Mr Ellson, I am not sure that Mr Darling has compromised on anything. What has happened is that the Acting Chairman of HMRC has clarified “what the Government’s intention has always been” in four areas. It is welcome and helpful clarification and it highlights a few areas where the published draft clauses are defective. What he has said is:

a) As long as those using the remittance basis declare their remittances and pay tax on them “they will not be required to disclose information on the source of the remittances”. Personally I agree that this is over-generous. In my experience when HMRC enquire into the tax return of a non-dom they invariably focus on remittances. I find it almost unbelievable that from 6 April they will apparently no longer do so but will simply accept what the taxpayer tells them. This immunity from tax return enquiries (and whatever other interventions are planned) could well be worth £30,000 on its own, as the costs of an enquiry can be horrific for the rich. I am also puzzled that Mr Darling talked only about being able to retain the remittance basis, and did not even mention this other very valuable benefit of paying the £30,000. For those here under 7 years the immunity from enquiries may be a fair bargain for the loss of personal allowances.

b) There will be no retrospection in the treatment of trusts and the tax charge will not apply to gains accrued or realised prior to the changes coming into effect. Unfortunately it is anyone’s guess what this means. It appears to require all of the trust assets to be deemed to be disposed of and reacquired at market value at 6 April 2008.

c) More brought into the UK to pay the £30,000 charge will not itself be taxable. That is good news.

d) It will continue to be possible to bring works of art into the UK for public display without incurring a tax charge. That somewhat misses the point. This is whether rich non-doms will wish to make their art available to the UK public in circumstances where they feel that they are being unfairly treated by the UK tax system – which many do, even though others may not share that sentiment. Furthermore the success of the London art market relies not on non-doms bringing their paintings here for public exhibition but on their (or rather their trustees) bringing them here to sell, and that in future will create a taxable remittance.

e) HMRC are discussing with the US authorities how the £30,000 charge can become creditable against US tax. It is hard to envisage the IRS being enthusiastic about that. What the UK is in effect saying to them is, “Please will you agree that for every wealthy US citizen living in the UK you will transfer £30,000 from the US Treasury’s coffers to the UK’s”. Why on earth should they agree to that? Furthermore as tax credits are limited to the overseas tax on the same income it is hard to see how a charge that is unrelated to any source of taxable income in the UK can ever become creditable in the US.


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