Non Domicile Tax: Labour Promises to End “Spurious Scam”

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Mods v Rockers

We live in fevered times.

I’m not only referring to Downing Street’s failed attempt to seize control of the ever more fractious debate over Brexit, which has seen Boris Johnson given a bloody nose by the highest court in the land.

The Labour Party conference in Brighton has made its own contribution to the current climate of division with the sort of proposals which led me wondering whether we were living in 2019 or 1983.

Support for the abolition of private schools and the introduction of a four-day working week seemed ripped from the playbook of the party’s former leader Michael Foot.

Mr Foot, if you recall, was in charge for the 1983 General Election, a campaign for which Labour produced a radical manifesto dubbed the “longest suicide note in history”by one of its own parliamentary representatives, no less.

The setting for this year’s conference, Brighton, was perhaps appropriate, given that it was associated for so long with dust-ups between Mods and Rockers.

With all parties desperately scrapping for the hearts and minds of the British electorate, I was particularly intrigued to see the Shadow Chancellor, John McDonnell, breaking from the politics of conviviality which has seen him apparently “woo” leading figures in the City.

A “Spurious Scam” which “Offended Ordinary People”

The John McDonnell who showed up at Brighton was clearly either set on merely winding up his opponents or winding up a left hook (he’s obviously a southpaw).

For a man who hopes to assume control of the country’s economic direction, his suggestion that non domicile status should be banned was the one which most caught my eye.

In an interview with The Times, he described it as a “spurious scam” which “offended ordinary people”.

Now, whilst I don’t doubt that Mr McDonnell’s objection is passionate and sincere, I’m afraid that he’s simply wrong on the facts.

Non Domicile & Remittance Basis – The Facts

Most people don’t need the help of a dictionary to comprehend that anything “spurious” is bogus or fraudulent and a “scam” is, in common parlance, a fraud, fiddle or con.

Non domicile status is, to be factual, a matter of law and not the sort of thing of dubious provenance flogged from the back of a van (nudge, nudge, wink, wink!). For the uninitiated, it is applied to someone living in the UK who is classed for tax purposes as having their permanent home or ‘domicile’ in another country.

A non domicile who is resident in the UK may benefit from something called the remittance basis. This means that they can leave foreign income and / or gains outside of the UK without suffering UK tax.

However, this income becomes taxable when it is brought to, used in, or enjoyed in the UK. Further, any UK income – such as that from a UK employment – is taxable just like any other UK resident person.

Parliament has decided that this is the right amount of tax for a non domiciled individual to pay.

Depending on the length of time that one has been resident in the UK, one might have to pay a charge for the privilege of leaving one’s foreign income and gains offshore. Following changes introduced in 2017, if one has been resident in the UK for 15/20 of the previous tax years then one loses the ability to claim the remittance basis.

The remittance basis is not a new thing either, created by oligarchs and overseas tech billionaires. It may interest some to know that it was brought into being by William Pitt the Younger in 1799. An interesting fact about Pitt is that he died from gout – not helped by the advice of one of his mates to drink copious amounts of port to cure it.

Lesson – never take medical advice, or tax advice, from a mate down the pub!

Despite his demise, the remittance basis lived on. However, the rules have understandably evolved. Over the last decade or so, the rules have undergone substantial and critical changes, most recently in 2017 at the hands of the then Chancellor of the Exchequer Philip Hammond.

It’s fair to say, therefore, that being non domicile is not even a loophole, let alone a scam. The rules are a matter of law and exactly as Parliament has intended.

Non Domicile – An Anachronism?

Now, it’s something rather different to maintain that the status is an anachronism and whether, if one was starting with a fresh piece of paper, this would be a feature of any new tax system. I certainly would not argue with such sentiments.

There is, though, a delicate circle to be squared.

Any proposal to do away with non-doms must surely include suggestions for how to avoid Britain appear unwelcoming at a time when Brexit will see the country having to find its feet without the support of the EU.

Furthermore, it’s impossible to avoid the huge sums contributed by non-doms to the economy.

During 2017-18, HMRC recorded 78,300 non-doms who, between them, coughed up more than £7.5 billion.

Now, admittedly, that figure was down by one-fifth on the year before. However, it came from 14 per cent fewer non-doms. The others, maintain HMRC, either declared themselves as domiciled here or simply left the UK and its tax system.

Conclusion

As with any bold initiatives advanced by politicians of all persuasions, the headlines are designed to captivate voters. It is one thing to promise, I would venture, and another thing to be able to deliver a sound, balanced policy which doesn’t mean the Treasury losing out.

Mr McDonnell seems an astute individual and far from a political naif. He must be aware that trying to keep backers and big business on-side involves a delicate balancing act. Isolating any one constituency by being too dramatic could spell disaster at the polls and for the public purse.

If you have any queries about this article, or Non Dom tax, then do please get in touch.

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