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  1. Law
February 26, 2016updated 27 Feb 2016 12:53am

It’s time to re-think non-dom reform

By Spear's

Ceris Gardner says non-doms must be puzzled that we want them to live here (but not bring their money), only to shrug at British eccentricity and obey

Martyn Gowar, the recently retired occupant of this column, is a very hard act to follow. His many years in the legal world have of course given him huge knowledge and experience. Beyond that, however, Martyn has a talent which cannot be learned — the ability to step back and take a more measured view of a situation, understanding the bigger picture as well as the immediate technical detail. Readers of this column will have appreciated his wisdom and insight, to which I would like to pay tribute.

As Martyn’s column often gently pointed out, governments could sometimes do with a bit of perspective. It must be tempting to press on with a policy, particularly when it is something a government feels strongly about, but sometimes the effect of a number of passionately held views, taken together, is chaotic.

Take, for example, the current policy objective on non-UK-domiciled individuals: that they should, after fifteen years of UK residence, be treated as any other taxpayer. There have been attempts over recent years to limit the tax ‘lost’ by allowing non-doms to pay UK tax only on their UK income and gains, and foreign income/gains brought to the UK. These attempts introduced an increasing ‘fee’ for longer-term residents, but there are some wealthy families for whom even a high annual fee is worthwhile, because of the value of the global income and gains on which they don’t have to pay UK tax.

The new aim is to limit the length of time any non-dom can use the remittance basis. Love it or hate it, the policy is clear. But does the new regime actually make any sense? Did anyone consider whether the old regime ever made sense? The difficulty hard-wired into the UK’s remittance basis is that it discourages remittance basis users from remitting money to the UK. Broadly, if you bring your foreign money to the UK while you are resident here, you will be taxed on it.

And so most remittance basis users try not to do so. In fact, the message is even stronger: through a series of complex rules, remittances are taxed on what is known as the ‘worst first’ basis. You will be deemed to bring in income before gains, and you are deemed to bring in money which hasn’t been taxed abroad before money on which you have already paid foreign tax. So you are actually punished for bringing in money to spend or invest.

Let’s be frank: this is terrific for non-doms, for whom the UK has long been a tax haven (and more congenial — albeit with a damper climate — than some alternatives). They invest and spend their money elsewhere, free from the burden of identifying the detailed categories of income and gains required by UK tax laws. To them it must seem puzzling that we want them to live here and not bring their money, but they shrug (metaphorically) at British eccentricity and obey.

From April 2017, non-doms will be ‘deemed domiciled’ for all UK tax purposes after fifteen years of residence. At that point, they can no longer use the remittance basis and become subject to income tax, capital gains tax and inheritance tax on their worldwide assets.

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But this only applies to new income and gains; the old rules lurk in the background. So an individual who (years later) brings in something which is, or indirectly represents, his foreign income from one of the years when he was a remittance-basis user is still punished for bringing it here.

Moreover, a person moving to the UK will of course need somewhere to live. The government’s desire for a larger slice of the UK’s inflated house prices has led to eye-watering recent hikes in property taxes, with a top rate of 12 per cent for Stamp Duty Land Tax.

From April 2016, a further 3 per cent is added unless the property you are buying is your only home, including properties you own in any other country.

Plenty of other countries want to attract wealthy foreigners and offer tax breaks from a fixed annual tax charge (Switzerland), or five to ten years when you pay no tax on foreign income (Spain, Israel and New Zealand). Very few punish you for importing your foreign income. Most don’t have Inheritance Tax (the UK’s, at 40 per cent, is the world’s fourth highest). I cannot think of a single one which will tax you more to buy a home there if you already own a property anywhere in the world.

Ironically, at the same time, the (newish) statutory residence test makes it easier for those with homes abroad to manage their UK day count to avoid being resident at all. Isn’t the government’s policy aim — to ‘attract talented individuals to live in the UK who will help to contribute to the success of this country by investing here and creating jobs’ — undermined by the combination of these rules?

It’s time for a rethink on how attractive the UK really is.

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