But I don’t understand

The technical change is significant: HMRC has decided that it will not now retrospectively deem that assets used as security for the UK loans of non-doms are assets that have for tax purposes been remitted to the UK, with tax potentially therefore being due on them.To put it another way: HMRC have decided a loophole for the rich that it had been announced would be reversed can continue.

Three thoughts follow.

First, Jolyon Maugham and I worked hard with Labour before the election to suggest the non-dom rule had to end, and that policy initiative provided it with the most successful day of its campaign. I remain convinced it is the right thing to do. There is no justice in a tax system that discriminates between people on the basis of the accident of a person’s place of birth. There should be no more loopholes because there should be no non-dom rule since it offends all the most basic tenants of social justice.

He’s been telling us for years that tax is due where the economic activity takes place. So why should UK tax be due on economic activity that does not take place in the UK?

21 thoughts on “But I don’t understand”

  1. Because he can’t see his own inconsistencies.

    “There is no justice in a tax system that discriminates between people on the basis of the accident of a person’s place of birth.”

    …but he wants a passport tax, no matter where you live.

    He also claims tax is the state reclaiming the money it spends into the economy, so your tax money was never yours to start with. Ask him how that allows the one state to claim tax on money earned in another state and he deletes you.

  2. As far as Murphy is concerned tax is due *both* where the activity takes place *and* where the taxpayer resides (and if he has two homes in different countries, in both those countries). He has been quite consistent about this.

  3. The non-dom rule is, in my opinion, usually looked at backwards.

    People think you get a tax advantage by being non-UK domiciled, but I think it’s more complex than that.

    Going to square 1 (and apologies for egg-sucking lessons), if you ignore domicile to start with, and just look year on year, then there are two basic rules:

    – If you have income in the UK, it’s taxed here
    – If you’re resident in the UK, all your non-UK income is taxed here too.

    This is a very sharp cliff edge for people moving to the UK. If you stick with just those rules, then an American seconded to the UK temporarily would be taxed in the UK on his American savings and investments. This is OK in a way, if you assume that he’d get double tax relief so might well not actually have any UK tax to pay, but at the very least it’s an admin burden and there is a conceptual leap to be made about whether non-UK income of someone who’s not a UK person should be taxable in the UK.

    So we have a softening of the rules:

    – UK-source income is taxed here
    – Worldwide income of people resident in the UK is taxed here only if there’s some connection between the income and the UK

    There are two possible connections:

    1) The income belongs to a UK person (ie from the UK, or living here long-term)
    2) The income comes in to the UK

    This all makes intellectual sense to me, and domicile is just then a way of keeping track of who’s a UK person.

    On this reading, non-dom status isn’t an advantage, it’s the normal state of being. It’s UK domicile that’s the unusual position, in that it automatically brings you back into the UK tax net regardless of the facts – in something of the way that the US passport system does (although weaker, as it recognises that living outside the UK is possible).

    That is, I don’t think living in the UK for 17 of the last 20 years is “deemed domicile”: I think that being domiciled in the UK is “deemed living here for 17 out of 20 years” 🙂

    Incidentally, I don’t like the non-dom remittance basis charge, as it doesn’t really relate to anything about the person. It’s basically just saying that we’ll treat you as if you’re from the UK, even though you aren’t, just because we can.

    Although you can regard it as a simplification: to keep the rules simple we treat everyone as being a UK person, but if you want to be complicated we’ll charge you an admin fee.

    The whole issue with non-doms is just that this domicile concept is woolly, and doesn’t really do the job properly. I would rather do away with domicile and go to some form of statutory long-term residence test, along the lines of the year by year residence test that came in recently. Something like: you’re a UK person if you’ve lived here more than half of the last 20 years (or your lifetime if less than 20 years). Simple, factual, and objective 🙂

  4. >>it offends all the most basic tenants of social justice

    Who are these guys? Since when did social justice start letting out accommodation?

  5. The quote from Dickie paints a picture of non-doms using foreign assets to secure UK loans and that those assets were to be considered as having been remitted and therefore be taxable.

    I’ve been reading around on this to try and make sense of it and not really succeeding. I think the view like Dickies is an overly literal interpretation of what remittance means.* Going by this article from last year it seems to me the change was not how Dickie described. It was that UK income, used to repay UK loans secured against foreign assets, would be treated and taxed as if it had been remitted from abroad.

    To get to that understanding I have had to work backwards starting from the behaviour that they appear to have wanted to clamp down on – that of non-doms having UK lending secured against foreign assets and using their UK income to repay the loan. But that UK income would be taxed here. I don’t see what the problem is. No money is crossing boarders but HMRC wanted to treat those UK earned, UK loan repayments as if it was because the loan was secured against foreign assets.

    * eg the paragraph in this blog that says “On the strict wording of the relevant legislation, if an individual uses his foreign income and/or gains as collateral for the bank borrowing, that too would be a taxable remittance of the foreign income/gains as the non-dom would be using his foreign income/gains “in respect of” the debt.”

  6. “As far as Murphy is concerned tax is due *both* where the activity takes place *and* where the taxpayer resides (and if he has two homes in different countries, in both those countries). He has been quite consistent about this.”

    Indeed he has. Unfortunately for him, tax law in most countries fails him. And that’s kind of the point, you know: Law.

  7. It’s that concept of law that always defeats Murph…why his tax gap “calculation” is just a taxsturbatory guess.

  8. Gareth – “I don’t see what the problem is.”

    The problem is that if you have income of £1m overseas, and you’re on the remittance basis, then if you bring those million sterlings into the UK then they get taxed here. The idea is that if you’re UK-resident, you get taxed on income that you get to enjoy in the UK.

    If you have a million offshore sterlings of income, and borrow a different million sterlings while leaving the offshore ones offshore, then (absent the new rules) you don’t get any tax charge: the income is not enjoyed in the UK, and the UK cash isn’t income.

    So to counter this anomaly the new rules say that if you borrow a million sterlings, using a million off-shore sterlings as security, we’ll act as if the onshore cash was actually the same cash as the offshore stuff. That is, treat cash as if it’s fungible.

    So actually the real problem is at the heart of the remittance basis: the remittance basis assumes that cash can be split into separate identifable bits, when in fact it’s fungible. These rules are a fudge to try to cope with that fundamental problem.

  9. Pellinor ‘ s post at 9.14 basically has it. This anti-avoidance measure (which is what it is intended to be) highlights the confused nature of non-dom rules.

    Why allow them to continue? Why not tax all UK residents (Income Tax is fundamentally abouy residence; not nationality) in the same way? Because we want to attract talented wealthy people; stories of 19th Century colonials don’t really add much anymore. The problem is the non-dom rules encourage these people to keep funds offshore and not to bring them into the UK until they are ‘alienated’. This is a nonsense in terms of intended outcomes and, as Pellinor notes, it is a nonsense to try to distinguish what is inherently fungible.

    As for Murphy: he wants retrospective taxation; twat.

  10. There was an FT comment piece before the election which argued against the non-dom rules on the basis that they explicitly discouraged investment by non-dom residents into the UK, because if they brought their money in it would be taxed, whereas if they invested elsewhere it might not be. I’m not sure how easy it would be to structure around that problem but the fundamental point must be valid.

    I think they’ve got it more or less right now. It did seem a little strange that someone could be born in the UK to UK-domiciled parents, be raised in the UK, and live in the UK after a relatively brief hiatus abroad, and claim to be domiciled outside the UK. There will be one fairly high profile scalp as a result of the recent changes (in particular the change that you cannot claim the remittance basis if you have a UK domicile of origin). There seems little doubt in my mind that this will either cost the Treasury money (because that scalp, and people like him, will leave) or be revenue neutral (because they will plan around it), but it is hard to argue with the fairness of it.

    If you spend half your life (or more) in the UK, I think it is hard to argue that it isn’t really your home, so I think this 17/20 rule is close to being right too.

  11. Fatty

    “I think they’ve got it more or less right now”

    I agree the rules are better now. As long as we continue on a remittance basis, however, I don’t think we can go the whole way and call them ‘right’.

  12. “First, Jolyon Maugham and I worked hard with Labour before the election to suggest the non-dom rule had to end”

    I watched thay discussion very carefully at the time. Yes Jolyon Maugham worked very hard, wrote detailed peices on hosnnlog and was referred to countless times in the national press. I do not recall anywhere seeing Murphy’s ne linked with this or any suggestion that they were working g on this together. Is this another ‘I invented country-by-country”?

    Shameless

  13. Why not tax all UK residents (Income Tax is fundamentally abouy residence; not nationality) in the same way?

    A lot of countries – Denmark, France, Netherlands, UK, Switzerland – have an “impatriate” tax allowance, which takes into account that somebody might only be there temporarily.

    For example, I’m an “impatriate” in France, and my company pays for my accommodation. In ordinary circumstances that would be a taxable benefit, but I am only supposed to be here temporarily. If companies want to assign staff to overseas locations for short-ish periods (i.e. <5 years) then it is reasonable that they provide accommodation, schooling, healthcare, etc. But if these are taxed, the employee will be left with nothing from his or her salary. Recognising the benefit of companies being able to assign foreigners about the place, the various tax authorities make allowances for such benefits to be tax free up to about 5-6 years.

    I don't think this is the same as non-doms, but it is an example of why, in certain circumstances, all residents are not taxed the same way in order to attract skilled foreigners (or me). In France, I still have to pay tax on overseas income, if I had any. But if a tax treaty exists between France and where the income arises, then I only have to prove I've paid the tax in the country where the income arises. But for some people it can be an issue, especially those who are coming up to retirement: Norway has a wealth tax applicable to all residents on worldwide wealth, and I know at least one expat who has refused to go there for a 3 year assignment because he doesn't want his savings, house, and pension clobbered.

  14. Tim Newman

    This is a small point, but I offered a question and answer. By just copying the question you have changed the sense of.the comment.

  15. @Ironman

    I agree. Jolyon worked with Labour. Murphy shouted and stamped his feet on the side-lines.

    His claim is yet another of his puffed up self-important baseless boasts.

    As for non-Doms, one aspect I always find intriguing is the ‘morality’ line Murphy runs on UK based businesses. These have a moral duty to pay tax because the UK pays for the infrastructure that supports the business. Fair enough. So what moral claim can the UK possibly have on the profits of a factory in India? Just because the owner happens to live in the UK. The UK provides nothing to support that factory.

    Of course, at that point morality isn’t a factor and the factory owner is just a rich guy who ought to be heavily taxed because he’s rich.

    It’s the flexibility of morals on the left that I find so annoying.

  16. Andrew

    I agree. The ‘use of services’ argument is a false morality, revealing a deficiency in critical reasoning. “You enjoy this infrastructure so you have an obligation to pay tax” sees government and taxpayer in a provider: purchaser arrangement. It is actually an argument for direct charging for services. “You use the roads; you pay a tole”. The corollary is “you don’t use the roads; no charge. You don’t have kids at a state school; no charge. You’re in great health; your health insurance premium must be really low.”

    He does sometimes struggle with that joining it all up thing doesn’t he.

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