Dodgy Non-Doms

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Dodgy Non-Doms

You cannot have failed to notice the publicity surrounding the Labour Party’s announcement, over the weekend, about how they are going to “crack down” on tax avoidance by imposing higher penalties on taxpayers who fail to fully declare their income and their recent attack on non-doms. Both statements are intensely irritating. If you could stop tax avoidance by “cracking down” and imposing higher penalties, wouldn’t every previous government have already done it? Wouldn’t Ed Balls have done it when he was actually in government, rather than just electioneering?

The statement about “Non-doms” is also highly questionable. But first, a little background. It was for many years the case that someone who came to the UK and was “resident” would have to pay tax on what they earned in that year in the UK. The rule of thumb test for residence was that someone who had spent more than half the year in the UK (183 days) or was in the habit of spending extended periods of time in the UK in recent years and spent more than 90 days but less than 183 days here in any one year (the “90 day” rule) would fall into the resident category. However, unless they made their permanent home here, and become “domiciled” in one of the countries of the UK, the UK would not attempt to tax their earnings abroad. If they had kept investments, or rented out a property in their home country, that income would, presumably, be taxed in their home jurisdiction and the UK was not interested in chasing after that income to verify and tax it, if the situation was only a temporary one. It would, however, tax any money actually received into the UK – the “remittance basis”. So far, so logical.

What some taxpayers have been doing, however, is stretching these concepts to, and beyond, their logical, sensible limits. Travelling from Monte Carlo to London several days a week getting the first plane out and the last plane back, for instance, and claiming that, because you never spend the night in the UK, you are not resident for any of those days. Or the bankers who moved to London for work reasons, liked it and stayed for many years – 5, 10, even 20 years – while keeping offshore investments on which the income was never taxed (because the accounts were in tax havens) and were never remitted to the UK either on the basis they remained domiciled somewhere else.

The response of government has been to tighten up the technical definitions. There is now a sterner statutory residence test and 105 pages of “guidance” to help apply it. Oh good, that will be much clearer, then. The Labour party manifesto also now declares “we will abolish non-dom status so that those who make the UK their home pay tax in the same way as the rest of us”. What does that actually mean? “We will abolish people who are foreign”? No. Does it mean “we will abolish the status of being foreign, so that everyone in the world is a UK taxpayer”? Surely not. We are yet to see exactly what is meant: if the Labour party gets into government they say they will consult to work out exactly how to take the policy forward, but I think we can all guess what they have in mind. More statutory changes, more rafts of guidance, defining what does and does not qualify as “domiciled” (or, more probably, some other label that does not sound quite so old-fashioned, like “habitually-resident”) with a view to closing existing loopholes and, probably unintentionally, opening up a whole lot of new ones.

Is there not a better way? Does not the statement in the manifesto point out what it is? The whole point about making sure that “those who make the UK their home pay tax in the same way as the rest of us” is that it is a statement of what the law currently is. If someone has “made their home” in this country, then they are in fact domiciled here, just like the “rest of us”. That is what domicile, conceptually, is. Someone who has “made their home” in the UK in the technical language of the law has adopted a “domicile of choice” in the UK. The fact is that many of the US investment bankers and Russian oligarchs and Nordic industrialists and shipowners who have been claiming “non-domiciled” status have now been doing so for many years and are clearly well settled here: their claim to be “non-domiciled” should have been challenged many years ago, even on the law as it currently stands. It is patently ludicrous for someone born and brought up in the UK, most of whose family lives in the UK, who then goes to work in (say) Hong Kong at the request of their employer because it is a major world financial centre while still sending his children to school in the UK is in any sense “domiciled” in Hong Kong for the period of time he is away: he clearly has not developed any settled intention of living out his days in Hong Kong and when he (surprise, surprise!) comes back to live in the UK, any claim that the assets he has squirrelled away in the meantime are the assets of a non-domiciled, “foreign” person, excluded for the operation of UK Inheritance Tax, should simply be dismissed. It is like the claim to be non-resident of the person who sleeps in Monaco but works and makes money in London by being a “Heathrow commuter”. It is just trying it on. It is taking the mickey, and if HMRC and the Treasury had simply had the cojones to say so more often in the past then, surely, a lot of the rule-changing and guidance re-writing the Labour party has in store for us could be avoided?

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