My Word, people respond to tax incentives?

HM Revenue & Customs said the number of UK residents escaping tax on income or capital gains held in offshore bank accounts had declined from 139,000 to 123,000 in the year prior and after the launch of the £30,000 remittance basis charge in April 2008.

Say it isn\’t so!

About 5,400 people paid the £30,000 non-dom levy for the 2008/9 tax year, more than the 4,000 predicted by the Treasury prior to the tax’s introduction. This collected around £162m for the public purse, with £350m forecast for 2009/10.

In contrast, the Treasury estimated that non-doms pay around £4bn in income tax each year on top of the tax they pay on capital gains on UK assets, stamp duty and value added tax on spending, which brings the estimated total to £7bn.

And I think we might have spotted a Laffer Curve in the wild here.

We\’ve an 11.5% decline in the number of non-doms resident. Taking that £7 billion figure, reducing it by 11.5% we get a loss of £805 million.

We got £162 million from the new tax, lost £805 million on the old ones……a tax rise reduced revenue collected. Yup, that\’s the Laffer Curve alright.

So, err, why are we actually doing this?

9 thoughts on “My Word, people respond to tax incentives?”

  1. Short answer is that it keeps Murphy fans quiet. Which ever way you look at it, that’s very expensive silence.

    Long answer is it drives the Murphy narrative ever onwards because each sham ‘victory’ rallies the troops towards another costly assault.

    It has nothing to do with economics & everything to do with politics.

  2. Its good. The quicker we run out of money the better IMO. Its only when we REALLY run out of cash that things will get sorted. So the more billionaires we can drive overseas the lower the tax take, the worse the deficit, the greater likelihood of the govt running out of money. Bring it on!

  3. could some of the decrease in the number of non doms be accounted for by previous non doms dropping their non dom status?

  4. So, err, why are we actually doing this?

    Because it is a socialist idea and socialism has nothing to do with economic common sense and everything to do with pathetic gestures designed to appeal to the spiteful and envious amongst us.

  5. I’m not sure your calculation stands up. Surely the non-doms who didn’t want to pay £30k will tend to be the poorest?

  6. OK, so let’s refine some of the above comments.
    Unlike the majority of folk who post here they’re not actually interested in making the system work better. They want to replace the system with control by people like themselves.
    So therefore the purpose of the tax avoidance campaign is not to increase total tax receipts but to reduce them, at the same time chasing away those irritating entrepreneurs. Coupled with increased spending, the decrease in the tax take widens the gap between receipts & outgoings so encouraging calls for more draconian measures to enforce higher taxes on a smaller tax base.
    Not a bad strategy if eventual total state control’s your objective.

  7. Matthew,

    That was my thought as well, but all we’re really saying is that the tax reduction is probably less than 805m.

    Given that the amount received is a fifth of that, it would be reasonable to assume the whole thing results in a loss.

  8. No, not really.

    The £7bn figure was not the Treasury but the Society for Trust and Estate Practioners, and the IFS said the numbers were ‘flawed’ and based on ‘heroic’ assumptions.

    When the Treasury made the calculations it said 20,000 non-doms a year would face tha tax, and 4,000 would pay, 14,000 move to normal taxation and 3,000 leave.

    That basically fits the figure above, so if 5,400 paid and 3,000 left, we have little change in tax revenue. If the £7bn figure is fantasy, then we have a gain.

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