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Taxing non-doms and other outrages
Posted 6/03/2008 by Alex Novarese
Ever get the feeling advisers are being a touch melodramatic in forecasting the collapse of the City in light of the Treasury’s attempt to extract more tax from non-doms?
City desks have been bombarded for weeks by self-interested missives arguing the UK is about to see an exodus thanks to plans to levy a £30,000 charge on those who live in the UK for seven years and wish to maintain their tax status.
As illustrated by a recent Big Question survey, lawyers are among the most concerned, with one respondent going so far as to label the reform as “petty, class/xenophobe-driven and will drive business away from London”. Another cites the policy as a “disaster” and one more senses a return to “the politics of envy”.
Hmmmm. Of the main charges levelled against the Government, those that cite the lack of consultation and sense of uncertainty it has created have a point. The Treasury never should have gotten into a bidding war with the Tories over tax policy following last year’s conference season.
Getting the correct balance in tax so that revenue does not float abroad is a notoriously delicate balancing act in the age of international tax competition, so this was an unforced error on the Government’s part. It’s also probably true that the Government has created disproportionate risk to the actual amount of revenue is it likely to secure though its unsure handling.
But it’s harder to sustain as much outrage over the proposed level of taxation, or indeed the concept of higher taxation itself. It is also true that the Square Mile has proved very resilient over the last 300 years. With an essentially pro-market Government and similarly-minded opposition, it is likely to remain so, even if a handful of non-doms choose to decamp.
The mistake that advisers frequently make is confusing self-interest – which is to secure lucrative advisory fees from such clients – with the economic and social interests of the country. Such self-involved lobbying will often find a receptive audience in certain sections of the press but I’m not sure it does much for the credibility of advisers in the long run.
Some lawyers are also being perhaps a touch naïve about the political head of steam that is building around income inequality in this country. Where once the middle classes were lining up with free-market liberals and the wealthy, the debate over the last five years has shifted markedly as middle-income voters feel over-taxed and priced out of swathes of the property market. Many City lawyers are sensitive to these issues... but a few are not.
You don’t have to be anti-business to think those that advisers that lobby too shrilly on the behalf of super-rich clients risk undermining their own standing. Likewise, when lawyers’ earnings attract more outside scrutiny – which they will – it would be helpful to find a spokesperson for the profession who won’t moan about how lawyers get paid less than investment bankers.
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Comments
Alex
It's all about switch and bait. 150 years of stability for non-doms, and then it all changes for nothing other than to appease some rich hating unionists and wage slaves. How about, for example, giving those aleady here the 7 years notice that the goverment has hailed as a fair period in which to work out if you want to stay and pay tax? No, because its easier just to try and fill the gap by taxing some non-voting suckers who bought into their tax policy.
This is not good for tax policy or for attracting investment to the UK. The Irish, the Greeks, the Swiss and Monaco (even the French, who have a an offshore element to their system) must be laughing very hard. Even Ken Livingstone (not know for his love of the rich or right wing ideals) thinks it's idiotic.
As it turns out, the details announced yesterday were at the most cynical end of the spectrum. The headline tax (with all its regressive unfairness for lower end non-doms but appeal to rich haters and unionists) stays in, while the biggest dodge of all (allowing non-doms to keep assets CGT free in offshore trusts - something ONLY the rich can take advantage of) stays in, along with an empty promise not to make any more tax changes.
In other words, the super rich get off with a minor tip to the government and the merely hard working professionals get stung with a brand new tax of up to 40% of their income. Brilliant.
Wasn't this tax supposed to address fairness and tax the super rich?
Posted by Anon | 13/03/2008
Easy tiger. I never said in the original article that all non-doms are rich and I don’t think, as far as I can tell, that I have ‘richness envy’. The non-doms that don’t want to pay the levy because they are not well-off can pay tax in the UK.
I would also question whether the UK has had the tax stability for 150 years that you cite. Many would say that UK tax policy has gone through radical upheaval since the 1970s and has been subject to near-constant fiddling for the last decade.
But even if it were true that there has been tax stasis for the last 100 years, so what? Your contention appears to be that a government is morally bound to leave tax policy unchanged simply because they haven’t changed it in the past, which is not realistic in rapidly changing economic conditions. Governments change policies all the time because they are driven by political considerations. There’s nothing wrong with that – it’s just democracy. Non-doms have no God-given right to favourable tax policy in the UK. The only logical argument for special consideration is that they generally bring exceptional skills and wealth to the country that benefits the wider economy.
That said, I’d agree that the Government has botched tax policy on this one, which I made pretty clear in the original piece.
Posted by Alex Novarese | 12/03/2008
The last post is as ignorant as the original article.
It contains the usual assumption that all non-doms are "rich" or "super rich" or are somehow taking unreasonable advantage of the humble British tax payer.
Most are not rich and many are not even well off. They are simply people who arrived in a UK with a stable tax regime that has been in place for over 150 years, with the not unreasonable expectation that such regime would stay in place and not be subject to arbitrary change based solely on expediant politics or politics of envy or worse still the ignorance of the last poster.
The UK that most non-doms arrived in is now gone thanks to a government that has competely botched tax policy and no non-dom who has a choice will stay here any longer than they have to, which will be to the cost of the economy as a hole.
As has been said many times... do you think the non-doms are here for the weather?
Posted by Anon | 12/03/2008
Is the angry poster really complaining about paying 40% tax (because there are others who are paying less) whilst also arguing that the Government shouldn't damage the UK's reputation by asking non-doms to pay more?
Which is it to be? That it is dangerous to tax the rich or that it is unfair not to tax the super-rich? Either way it seems the non-doms will complain...
Posted by Anonymous | 10/03/2008
So basically it's ok to let uber rich non-doms off the hook with a minor £30k tax slug (which is worth a tiny fraction of their income) and hit the rest of us non-doms with a £30k tax slug (worth up to 40% of our income) we were never previously obliged to pay under tax laws that have created stability on this matter for the last 150 years?
A lot of rich-envy journo-hacks simply don't get it that this issue (and the increases in CGT and the laughable CO2 tax in London) is all about tax stability. The fairness argument is ridiculous because it is also not fair to non-doms to arbitrarily increase taxes, especially in a restrospective and regressive manner (where some pay 40% and others will pay less than 1% of their incomes).
This government is hell bent on ruining the UK's reputation for a stable business environment. And for what? A few million pounds that they MAY make from non-doms who are dumb enough to settle here when their wealth is under attack? Hardly worth it, is it?
Posted by Anon | 10/03/2008
Private equity executives, bankers and the like have to appear outraged at these essentially minor fees. If they didn't the Government would probably raise the levy to £60k and clamp down further on offshore trusts disclosure. I expect the rich folk will remain in London and will, secretly, be quite happy with how it has worked out.
Posted by Anonymous | 10/03/2008
I spoke to one overseas delegate at the Legal Week Trust and Estates Forum, which took place in Provence last weekend, who said that some clients had indeed been preparing to leave ahead of the tax changes, but had put their plans on hold on learning of the Government's concessions on disclosure. It was the disclosure issue, as opposed to the actual levy, that had been causing the most alarm.
Posted by John Malpas | 7/03/2008