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Rachel Reeves
Rachel Reeves
Rachel Reeves

Axing non-dom status could lead to rich pickings

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Shadow Chancellor of the Exchequer, Rachel Reeves, has non-doms in her sights. So if Labour wins the next election, this could be a mixed blessing for accountants.

26th Apr 2022
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Despite what was close to a landslide victory only a couple of years ago and confident predictions from the prime minister that he would be in power for a decade, the combined efforts of Messrs Johnson and Sunak mean that there is suddenly a realistic prospect of a Labour government coming to power in the foreseeable future.

If that comes to pass, we should all pay attention to yesterday’s proposal from Shadow Chancellor of the Exchequer, Rachel Reeves, who wants to abolish non-domicile status other than for temporary visitors.

She has been looking into the situation in other countries and initially suggests that the permissible period for non-residents to retain tax relief on income derived overseas should reduce to a period of between six months and five years.

From a practical perspective, one would hope that this might be tied to tax years, since the complications of trying to determine UK income for somebody who (say) arrived on 1 January 2024 and then became taxable on global income 12 months later do not bear thinking about.

Many readers might wishfully believe that this will never come to pass but that assumption would need to rely on either Boris Johnson or one of his relatively uninspiring colleagues winning the next general election (hardly a given at the moment), or on Labour concluding that the British economy really would be damaged by the proposed legislative change.

Life without non-doms

For decades, a view has been loudly propounded that the British economy would be severely damaged by the abolition of non-doms.

The theory is simple enough. If you took away the status, every non-dom would immediately leave the United Kingdom and relocate to a tax haven. In an interview with Reeves earlier in the week, it was suggested that many might decamp to Monaco or Jersey.

Let’s be realistic about this. Unless you particularly enjoy seclusion and sunshine, being ultra-rich in either of those locations would be a bit of a bummer. This would mean sacrificing every cultural interest, interactions with so many of your friends and, worst of all, the chance to follow the football team that you had just bought for several billion pounds.

In addition, given the current legislative framework where those who have been resident here for 15 years lose the status anyway, over a period of time many will be forced to make the same decision either way.

Dan Neidle of Clifford Chance, who has actively been campaigning for the change of late, says: “I’ve had numerous discussions with accountants, lawyers, QCs, consultants and business people. Lots of views, but three very consistent messages:

  1. There is zero support for the current domicile definition. As in, not one person supported it, and universal agreement we should replace it with, for example a simple statutory residence-based test.
  2. Few people now believe the traditional view that “if you change it they will leave”. The changes of the past few years demonstrate this ain’t so.
  3. There is no point reforming the non-dom rules without radical changes to trust taxation. Otherwise the wealthiest would be largely unaffected.

Food for thought.

As he suggests, while some might depart, others who are already used to paying taxes elsewhere, and realise that if they decamped to the United States the situation is going to be even worse, would stay and pay the taxes that they can easily afford anyway.

Significant consequences

Now that this proposal is on the table and needs to be taken seriously, someone might start doing the calculations to determine the overall outcome.

If nothing else, it would certainly bring significant additional taxes into a very needy Exchequer at a time when the cost-of-living crisis is proving devastating.

In reality, the number of people involved is tiny but the consequences are significant. On one side, the tax flows would be very good news. On the other, some of the non-doms may decide to try their luck elsewhere.

Short-term benefits

Either way, there would be at least a short-term benefit to those accountants who advise the very wealthy. Just imagine how much you could charge for unpicking the arrangements and helping them to shift money overseas.

One hates to suggest it, but the less scrupulous of our brethren (and sorority) might even have a great deal of fun and bolster their bank accounts by facilitating the kind of tax evasion arrangements that have been so popular due to obfuscation and the willingness of those in crown dependencies and beyond to facilitate money laundering, fraud and other nefarious activities.

More realistically, those who dabble in this market would do well in the short term but might lose out when clients no longer needed sophisticated services to help them ensure that none of their income is taxable in the UK.

In return, having a very wealthy client who is fully taxable in the UK might not be the worst disaster, since they would need a great deal of advice to optimise their tax arrangements.

Replies (20)

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By Hugo Fair
26th Apr 2022 11:54

"Let’s be realistic about this. Unless you particularly enjoy seclusion and sunshine, being ultra-rich in either of those locations (Monaco or Jersey) would be a bit of a bummer ... sacrificing every cultural interest, interactions with so many of your friends"

You are kidding, right? I'm just back from a week in Dubai (courtesy of a free return ticket from a friend who's more than happy to avoid the benefits of the UK) ... and I can report back that their ability to provide quality cultural activities far exceeds anything in London, accompanied by a level of friendliness & solicitude you won't encounter over here without using a time-machine to travel back 50+ years.
Oh, and the quality of food is vastly better but less expensive, and the trains/trams/monorail are cleaner and cheaper, and the weather's glorious, and there's no energy crisis (green or non-green).

This is not a plug for one country - just a reminder that there are plenty of places that combine lower taxation with a lifestyle that most would envy. The UK no longer has sufficient cultural and social attributes to outweigh what you can get elsewhere, so it needs the money to tackle those deprivations.

Non-doms aren't sacrosanct, and nor should the associated tax regs be treated as such, but careless & cheap jibes that aren't accurate are dangerous.

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Replying to Hugo Fair:
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By philaccountant
27th Apr 2022 13:02

"and I can report back that their ability to provide quality cultural activities far exceeds anything in London"

Unless you're gay, then you might have a vastly different experience.

There's a lot wrong with the UK and it feels like we're sinking as a nation to me, but I'd still rather be here than living in a country that treats specific sections of its society with such contempt just for being who they are.

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Replying to Hugo Fair:
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By TASG
27th Apr 2022 14:15

I've acted for many foreign domiciled people claiming the remittance basis: they were all here to work and would be here to work with or without the benefit of non-dom status. There may be some for whom tax is a material issue: my anecdotal experience is these will be a minority.

I also suspect the costs and complexities of compliance will be a bigger issue than the tax (due to Foreign Tax Credit Relief) itself - unless there is significant tax haven income. For which I have no sympathy.

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By Justin Bryant
26th Apr 2022 12:38

"1. There is zero support for the current domicile definition. As in, not one person supported it, and universal agreement we should replace it with, for example a simple statutory residence-based test."

I doubt London estate agents would rejoice at this change. And what about most non-doms themselves? To not get a quote from the other side of the fence of this rather extreme and exaggerated statement is very poor financial journalism, if it's right to describe it as such in the 1st place (it reads more like a typically biased Richard Murphy piece). Aweb can and should do better.

Even if it's not proper financial journalism and is just the author's biased opinion à la RM, it's misleading to say the non dom benefit/status is lost after 15 years as HMRC accept an EPT set up by a non dom preserves its tax avoidance status. See:

https://www.mauriceturnorgardner.com/media/attachments/Planning_for_deem...

If you removed EPTs then I suspect a lot of very rich people will remove themselves from the UK. Whether that is good or bad can be debated separately.

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Replying to Justin Bryant:
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By AndyC555
26th Apr 2022 14:07

"it reads more like a typically biased Richard Murphy piece"

Biased for sure and full of the usual sniping and innuendo but not in David Icke territory, unlike Mr Murphy's blog on his website on 11th April entitled....

"The Tories are the enemy of the survival of human life here on earth"

Given that Aweb still occasionally ask Mr Murphy to publish on here, I can only echo "can and should do better".

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Replying to AndyC555:
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By Justin Bryant
26th Apr 2022 16:28

I don’t think anyone takes RM seriously.

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Replying to Justin Bryant:
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By AndyC555
26th Apr 2022 18:10

He takes himself very seriously.

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Replying to Justin Bryant:
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By Justin Bryant
26th Apr 2022 17:58

A noddy guide to EPTs is here: https://www.pkf-l.com/insights/tax-talk-excluded-property-trusts-how-to-...

See also:

"Non doms who have set up an offshore trust before they become deemed domiciled here under the 15 year rule will not be taxed on trust income and gains that are retained in the trust and such excluded property trusts will have the same IHT treatment as at present (subject to the announcement made at Budget 2015 on UK residential property held through offshore companies and similar vehicles). However, such long term residents will, from April 2017 be taxed on any benefits, capital or income received from any trusts on a worldwide basis. The government will consult on the necessary changes to the transfer of assets regime and Capital Gains Tax trust provisions. The government recognises that this is a significant change to the current rules and that changes to trust taxation are complex and will need to be considered carefully."

https://www.gov.uk/government/publications/technical-briefing-on-foreign...

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By AndyC555
26th Apr 2022 14:22

"few people now believe the traditional view that “if you change it they will leave”"

From a 2019 article in Forbes

"...latest government data showing that over 12,000 individuals have given up their "non-domiciled" status...So what has happened to all those people shedding their non-dom status?

"First, individuals switching to domiciled status and continuing to pay tax in the U.K. Second, those individuals leaving the U.K. tax system. These effects are roughly equal," says H.M. Customs & Revenue.

This means that roughly 6,000 wealthy individuals have chosen to... leave

The real reason, Gherson [Roger Gherson, partner at Immigration specialists Gherson solicitors] says, are the reforms to the non-dom status that mean individuals have to pay more tax, as well as increasing annual charges and a hefty penalty on non-compliance of offshore assets."

Isn't it awful when reality spoils things.

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By Michael C Feltham
27th Apr 2022 13:07

Ah, political envy. Shades of Dawn Primarolo and IR 35...

When, Thatcher was PM, she and her party used to hold an annual dinner at Number 10, for Non-Doms. The deal was as long as they chucked large cheques into the Tory Party funds, then that arty undertook not to change the law on Non-Dom status and taxation!

At the turn of the last century, the Liberals planned what was called The People's Budget: as Churchill, then a Liberal crowed: "We are going to tax the rich as never before!"

Guess what? When the budget was introduced and as time sped by, the ONLY people to suffer were Mr and Mrs Average... and this continues today.

I have always wondered how and why the Duke of Westminster - whose forebears owned vast tracts of the very best addresses in London (AKA The Grosvenor Estates) has managed to escape the swingeing bite of IHT.

https://en.wikipedia.org/wiki/Grosvenor_Group

Uniformed Lefty zealots wax lyrical about tax avoidance; since they haven't a wee clue regarding Dual Taxation Treaties (Of which there are in excess of 200 in force): which are used by such as Mickey Ds, Apple, Google, Starbucks, Amazon et al, to generate huge revenues in the UK tax jurisdiction, but pay little or no UK taxation. The secret is a combination of franchising, IPR licenses and etc.

https://www.propublica.org/article/the-secret-irs-files-trove-of-never-b...

So, good luck Ms Reeves: carry on dreaming!

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Replying to Michael C Feltham:
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By Justin Bryant
27th Apr 2022 13:47

The Duke of Westminster's IHT planning ain't complicated at all. At most the trust pays 6% every 10 years (in practice it will be less than 6%), ignoring some insignificant IHT exit charges now and again. London property capital growth and rent receipts will always increase a lot more than 6% every 10 years (it'll be nearer 60% I expect), so you can't go wrong can you?

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Replying to Justin Bryant:
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By Michael C Feltham
27th Apr 2022 18:18

Indeed.

However, for untold years, Grosvenor Estates only ever "sold" leasehold interests.

My core point is, however, is that as invariably the way of things, nice ideas do not actually work and the Liberal's nice idea about taxing the rich, simply didn't work. The property basis of Grosvenor Estates dates back to 1677.

About the time the law changed at first (Leasehold Reform Act: now changed even more), I was a guest in the House of Lords, sitting above the throne. Gerald, the then Duke had most energetically resigned from the Tory Party in protest and as he entered the House, he glared at the Tory benches and sat with few others on the steps of the throne.

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Replying to Michael C Feltham:
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By AndyC555
28th Apr 2022 12:28

"At the turn of the last century, the Liberals planned what was called The People's Budget: as Churchill, then a Liberal crowed: "We are going to tax the rich as never before!""

Given that the last century 'turned' in 1999/2000, I doubt Churchill had much to say about it.

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By Ian McTernan CTA
27th Apr 2022 13:46

'that assumption would need to rely on either Boris Johnson or one of his relatively uninspiring colleagues '

It's clear the article's writer is politically biased.

It then goes on to quote someone who is actively campaigning for the change, who gives his own very biased viewpoint which is not based on actual facts which someone else has pointed out in their reply below:

Out of 12,0000 people, 6000 chose to leave. I wonder how many jobs that cost, investment lost, etc.

Labour are taking their usual blinkered 'tax the rich' populist approach (as it's popular with their core voters) without any thought of the consequences.

Do the rules need tightening up? Most definitely, but it needs to be supported with extra funding so HMRC can properly investigate every claimant.

But we also need to be careful of the consequences: rather than bring their money in and spend it here (generating huge amounts in other taxes), ultra rich will just revise their tax planning so that their worldwide income moves elsewhere and is taxed in a lower jurisdiction/excluded from UK taxation under the many DTA's.

I wonder if anyone has actually calculated the true cost of scrapping the non-dom rules, rather than dreaming of headline grabbing figures which won't be achieved.

It's a bit like proposing a 'windfall' tax on oil and gas companies, but no support after the huge hit BP took on the oil spill, and ignoring the fact oil profits are already subject to a higher tax regime and also increased profit= more CT payable anyway. And Labour's figures also seem to assume tax on worldwide profits of the oil companies. No mention of the reduction in available funds for investment nor changes in investment plans that occur if you tax too much either...

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Replying to Ian McTernan CTA:
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By Justin Bryant
27th Apr 2022 14:02

It ain't too difficult to simply stay non-UK resident under the SRT by limiting UK stays to 90 midnights and pay tax nowhere. That's what a lot of people living in Guernsey/Jersey/IoM/Portugal/Cyprus/Monaco etc. do. Which just adds to global warming and air pollution of course.

It's generally agreed here that this is a very poorly written article (amongst the worst I've seen), even ignoring the absurd tax evasion hyperbole.

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Replying to Ian McTernan CTA:
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By Brodders
28th Apr 2022 11:38

"It's clear the article's writer is politically biased."

And clearly you are entirely neutral?!

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Replying to Ian McTernan CTA:
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By justsotax
04th May 2022 14:10

I always hear of the riches these non-doms people bring to the UK.....but hear-say really isn't that compelling......of course I also thought the current government hated immigrants......but apparently is happy for them to have a tax break that brits born and bred here can't benefit from.

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By ireallyshouldknowthisbut
28th Apr 2022 12:29

Well as one of those awful guardian reading woke lefty types as typified in those bastions of balance, the Telegraph and the Daily Mail; I am all for taxing everyone the same, regardless of their domicile, even if it reduced the amount of tax collected. Its about principles more than cash, something of an old fashioned concept of course these days in our political class. A sensible system to my view would allow only temporary residents (say 3 years) to ignore their overseas assets, and everyone else would be in it together, just like Boris says.

Of course in practice much of what is offshore is actually taxable in the UK, its just hidden, just as much stuff in trusts is hidden from the beneficial owner.

Coming from an internationally mobile family, I can assure those brits who can count back to the doomsday book their ancestry in these fair isles that tax is usually well down the list of reasons for moving countries. Once you strike off "staying alive" (quite a big one for the little people) its normally down to perception of lifestyle, opportunity and political stability as well as language being a big draw for the UK.

My guess is most seriously wealthy non-doms would not allow the tax tail to wag the residence dog, unless they are actually worth a lot less than they like to think. Probably be a bit embarrassing in the billionaire's club moving country as you cant afford the tax bill.

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By Mad as a March Hare
29th Apr 2022 03:42

An article based on envy.

(Yes I'm posting in the middle of the night. In the real world some of us are woken a 3am by my two cats deciding that they were going to tear each other's throats out and use the bed as a trampoline as they chased each other.)

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By Justin Bryant
29th Apr 2022 11:07

I'm no friend of DG, but his more balanced (and succinct) view is here: https://www.taxjournal.com/articles/the-politics-of-taxing-non-doms-

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