Ritchie fails to note that the domicile rules works two ways

If you want to know why the domicile rule survives despite the very obvious abuses it permits ….

It survives because the tax profession and banks make money from it.

And they are the people who are too close to writing too much tax law.

And so this abuse of most people in the UK goes on.

As ever he’s failing to note that the domicile rule works two ways. Sure, it means that some income of people resident in the UK is not taxed in the UK. But it also means that some income (or assets) of people not resident in the UK is taxed.

It’s the balance of these two that is important, not just the first one.

Imagine that we had a purely residence based system. That would mean that we get tax on the worldwide incomes of the current resident but non-doms (dependent upon how many of them stay, of course). But we would also not get tax from those who are UK domiciled but non-resident (Hiya! not that my putative tax payments would offset Abramovich’s). The rules on things like CGT (at least used to be), UK sourced income and IHT are rather in HMRC’s favour for those who are non-resident and yet still domiciled.

Further, it’s not entirely clear how the balance works out. There’s however many tens of thousands who are non-doms. But there’s millions who are domiciled but non-resident (all those pensioners in Spain would almost certainly qualify).

It would actually be fascinating to know whether the non-dom rules actually make a profit for HMRC or not. Two different calculations.

1) Does revenue lost to non-doms outweigh revenue gained from non-resident but doms?

2) Now rerun this with some reasonable assumptions about how many non-doms would stay on a purely residence basis.

My guess would be that 2) would be HMRC profits and 1), well, I think it might be a close run thing.

22 thoughts on “Ritchie fails to note that the domicile rules works two ways”

  1. Hi Tim

    Not sure I’m following you here. Yes from an IHT perspective a non-UK resident but UK domiciled individual falls within the UK tax net but CGT was (until very recently) purely a residency issue. If you were non-resident there was no CGT (notwithstanding some anti-avoidance provisions regarding less than 5 year absences). Domicle is just not a factor in CGT. Now they are changing the rules so that non-UK tax residents incur a CGT charge on residential properties but domicile is still not a factor.

    Anyway the Murphaloon is being completely inconsistent. An ISA is not tax avoidance (we are told) because clearly it is in the intention of HMG that income arising inside an ISA wrapper is not taxable. Well, it’s cearly the intention of HMG that the income of a non-dom which arises outside the UK and remains there is not taxed. Clealrly, unequivicaly that is what the law says and the outcome is exactly what HMG envisaged. The Murphaloon also ascribes tax avoidance with an indicator of secrecy and actions that have no real substance. Well if Mr non-dom really,puts cash off-shore in as real a fashion as could possibly be imagined and then stands on a box outside Somerset House and announces what he has done through a megaphone it is still the case that any income arising on that cash is outside the scope of UK tax.

    No secrecy, real substance, outcome exactly as HMG envisaged. How the fcuk is that tax abuse per the Murphaloon’s OWN definitions?

    The bloke is a moron but sadly an influential one.

  2. Presumably UK-sourced income (e.g. State / Private pension) wouldn’t be taxed for non-resident non-doms, whereas it currently is for non-resident doms, like the people who retire to Spain?

  3. Your domicile status is irrelevant for pension purposes too. Whether a UK source pension is taxable in the UK or in the foreign country in which you live will depend on the particular tax treaty.

    Taking Spain as the country mentioned above, Article 17 of the tax convention between Spain and the UK makes clear that pensions are taxable only where you are resident.

  4. The man is an absolute moron – at the moment the comments section is clear (either he hasn’t got round to moderating the comments or he’s deleted them all) on all his entries. This sounds like it’s leading to another plug for the ‘passport tax’ he has suggested in the past. Utterly insane – I think it may have been Jim, one of the various blokes from across the globe or possibly abacab who speculated that he suffers from some kind of autism – he does seem to have a penchant for not so much flogging dead horses as bringing them up from the grave in skeletal form.

    What a sanctimonious blowhard – can we please just ignore him, and anyone quoting him, as a fringe crank not worthy of consideration?

  5. “This sounds like it’s leading to another plug for the ‘passport tax’ he has suggested in the past. ”

    You mean the one he has plugged (“US system, great”), U-turned on (“No, I mean the French system in respect of its citizens living in Monaco”), and said he’d never argued any differently on?

    I was wondering how long it would take to U-turn his U-turn. Could this be the day?

  6. Actually, whilst there are some treaties that give taxing rights on pensions income to the state of residence, they tend to be changed as renegotiation comes around to give the source state charging rights. That’s as it should be.
    Not domicile exactly but…

  7. @Ironman – the OECD ‘model’ treaty on which most treaties are based taxes on residence not source.

    I truth, I can’t see your reasoning for saying that ‘source’ is how it ‘should be’. If I am employed by a company in country A but work in country B I will be taxed in country B. Not sure why that should change if I retire and get a pension instead.

  8. AndyC

    Yes it does and yes there are plenty where residence rather than source is the deciding factor. And there are a few that aren’t and there are a few where..

    “As it should be” ? Well, pension is deferred earnings. So no tax is charged at the time they’re earned (often regarded mistakenly as a contribution by the taxman). No tax is charged either as the pension funds builds up. However, tax is charged when the pension is drawn, ie earnings from employments are charged on the receipts basis. Given this, it is right that the state that deferred charging the tax when the income was earned should get to charge the income to tax when.it is finally received, rather than the state in which the pensioner is now resident.
    Can get very complicated though, which might make residence more practical.

  9. Let’s be honest about it: the non-dom rules are a way to attract high net worth individuals to the UK, who otherwise wouldn’t be particularly drawn to a cold wet island in the north Atlantic. As a bonus it pisses off people like Ritchie.

  10. Andrew M: “Let’s be honest about it: the non-dom rules are a way to attract high net worth individuals to the UK, who otherwise wouldn’t be particularly drawn to a cold wet island in the north Atlantic.”

    Perhaps, maybe, non-dom personal tax rules might encourage somebody to abide over here. What do we get? The profits and taxes from shopping and personal indulgence? Or companies like Tata who make stuff.

    “a cold wet island in the north Atlantic” — spend more time with the globe, Andrew. Do you mean Greenland or UK islands?

  11. I agree with Andrew M, the non-dom rules exist now to bribe people to come here – and bring their.money with them. But they’re just not very good at it.

  12. The non-dom rules were invented decades before double-taxation treaties.
    That they are being abused by a *minority* of non-doms is a cause to revise them to deal with that, not to abolish them (except for Americans, why shouldn’t we tax Americans on their world-wide incom if Obama wants to tax Boris on non-taxable completely notional gains when he moves house?)

  13. I’m sure Murphy would love to have an American style tax system. Citizens are taxed no matter where they live *and* anyone working inside the US is taxed, ‘resident’ or not.

  14. “I ’m sure Murphy would love to have an American style tax system. Citizens are taxed no matter where they live *and* anyone working inside the US is taxed, ‘resident’ or not.”

    Before he U-turned, he seemed to be under the delusion that the UK could impose US-style idiocy without other countries reciprocating…….

    Can you imagine the Indian (etc) goverment taxing UK salaries, state benefits etc as income at Indian rates based on the current exchange rate?

  15. Off topic, but interesting:

    The Charity Commission told the BBC: “We have compliance cases open into both the Joseph Rowntree Charitable Trust and the Roddick Foundation.
    “In both cases the Commission’s regularity concerns are about how the trustees have ensured that charitable grants made to non-charitable bodies are only used for exclusively charitable purposes in line with their objectives.
    “This regulatory engagement has included robustly examining each charity’s decisions to previously make grants to Cage, which is not a charity.
    “Public statements made in the last few days by Cage raise clear questions for a charity considering funding its activities as to how they could comply with their legal duties as charity trustees.”

  16. Ironman

    I’m surprised Tim hasn’t picked up on this – Richard Murphy is being funded by apologists for ISIS – imagine that headline….

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