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Election Q&A: (11) The role of tax advisers
13 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

11. Eight million people and businesses use tax advisers in the UK every year. How do you see the role of tax advisers / tax agents in the tax system?

Conservatives
David Gauke has spoke of the need for advisers to ensure that people are compliant, and has also praised the input of professional bodies into the policy-making process. However Gauke and other ministers defend ‘high risk promoter’ legislation “to tackle the small minority of tax advisers who are persistently uncooperative and are not transparent in their dealings with HMRC.”

Labour
Tax advisers play an essential role in the tax system. Their skills and knowledge are vital in supporting individuals and businesses navigate the system. However, this advice should always have the aim of ensuring that the appropriate amount of tax is paid. Where it is found that advisers are giving advice that falsely reduces the tax liability owed then swift action should be taken to clamp down on this behaviour.

Lib Dems
No public statements on this topic have been found but the party has been supportive of government policy in this area.

SNP
We understand that the UK tax system is complex and companies, particularly those who wish to invest in Scotland, will often need support from experts to ensure they pay the taxes they owe. We believe that it is critical that people have trust in tax advisers and that they can have confidence that they are serving their interests with integrity and transparency. We see value in the Public Accounts Committee’s recommendation that a code of conduct should be introduced for all tax advisers.

Greens
We believe that tax should be used to change behaviour, except for solidaristic tax-paying behaviour! We would like to see tax advisers working to encourage companies and individuals to reduce their energy use, resource use, and waste production. Given the general anti-abuse legislation we would enforce firmly, we would see much less of a role for tax professionals offering avoidance advice. Some of these are welcome to join HMRC!

Sources: Conservative answer from David Gauke remarks to CIOT parliamentary reception, June 2012; David Gauke speech at HMRC Stakeholder Conference, November 2014
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Monday 13 April 2015

Media and Politics
 
Election Q&A: (10) Devolution of tax powers
12 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

10. Devolution of tax powers. How far should it go, and what do you see as the main risks/benefits?

Conservatives
David Cameron has promised that the Conservatives will support the granting of further tax powers to Scotland, as set out by the Smith Commission. Recognising that Northern Ireland faces a uniquely competitive disadvantage through a border with the Irish Republic, devolution of corporation tax has been legislated for. The people of Wales will soon vote in a referendum on a major transfer of income tax powers from Westminster. In September George Osborne observed: “When Scotland is rightly given greater control over its taxes, I suspect the people of Scotland will choose to put them down not up.” The party has promised that the English will “get more control over their taxes and their laws too” with “English votes for English laws”.

Labour
We would devolve business rates to city and county regions, so that they can invest to grow businesses in their area and benefit from any additional revenues in general. Such reforms can have an important affect, and we support measures that can increase inward investment and economic rebalancing, but they need go hand-in-hand with policies in other areas such as infrastructure and skills.

Lib Dems
The promised new powers must be delivered to Scotland irrespective of any issues in the rest of the UK. The party’s policy goes further than the Smith Commission, arguing for devolution of inheritance tax and capital gains tax powers too. The Lib Dems also back tax-varying powers for Wales.

SNP
The SNP remains committed to independence for Scotland. However, we accept that independence was not the choice of the majority of the Scottish people in the referendum. In its submission to the Smith Commission, the SNP Scottish Government set out the case for devolving all taxes in Scotland to the Scottish Parliament unless there were good reasons for them being reserved. Greater fiscal responsibility both increases the accountability of the Parliament to the people of Scotland, financially and democratically, and allows the Parliament to use its fiscal powers to pursue policy objectives.
Under the Smith Commission proposals for further devolution for Scotland, the Westminster Government will continue to control around 70% of tax-raising powers. That isn’t Home Rule; it’s continued Westminster rule. A strong team of SNP MPs in the House of Commons will make the case for more powers at every opportunity.

Greens
We believe in full independence for Scotland and, eventually, for Wales, NI and the English regions. Our principle is that tax should be collected locally and sent to wider levels of government by agreement. This needs to be supported by requirements for richer regions to share with poorer ones. We also support devolution of local taxation powers to local authorities. In particular we would not cap what local authorities are allowed to raise in Council Tax, allow local Councils to conduct revaluations and to set their own multiplier rates provided they are more progressive, and not require a referendum when they do so. We would also allow local authorities to set local business rates, and then distribute the whole of Council Tax receipts and Business Rate receipts between local authorities on a basis decided by a Commission independent of central government set up by local authorities themselves.

Sources: Conservative answer primarily from George Osborne’s party conference speech, September 2014
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Danny Alexander’s speech to Lib Dem conference, October 2014
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Sunday 12 April 2015

Media and Politics
 
Election Q&A: (9) Helping taxpayers on low incomes
12 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

9. What single measure would you enact that would best serve the interests of the individual taxpayer on a low income?

Conservatives
Conservatives draw attention to their plans to raise the tax-free personal allowance from £10,500 to £12,500, taking one million more of the lowest paid workers out of income tax, and meaning that if you work 30 hours a week on minimum wage, you will pay no income tax at all.

Labour
We will help those on middle and lower incomes by cutting income tax for hardworking people and introducing a lower 10p starting rate of tax.

Lib Dems
Further increases in the income tax personal allowance. The party would link the personal allowance to the minimum wage so that in future no-one with a full-time job on the minimum wage would pay income tax.

SNP
Reducing inequality, as well as being a key objective in itself, can also have a positive impact on economic growth. Central to our economic strategy is the promotion of Fair Work. The Scottish Government already leads by example by paying everyone within its pay policy the Living Wage and developing a Scottish Business Pledge to promote payment of fair wages in the private sector. We believe any future UK Government should make an equally clear commitment to the Living Wage.

Greens
The more we can increases taxes actually received from the wealthy and from tax avoiding corporations the less we need to tax those on low incomes. Our longer term proposal to move to Basic Income and abolish the income tax personal allowance will benefit everybody who earns less than around £40,000 pa.

Sources: Conservative answer from David Cameron’s party conference speech, October 2014
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Sunday 12 April 2015

Media and Politics
 
Election Q&A: (8) The OECD project on Base Erosion and Profit Shifting
11 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

8. What outcomes would you like to see from the OECD/G20 project on Base Erosion and Profit Shifting?

Conservatives
BEPS solutions should be consistent with the Government’s wish to promote UK growth and competitiveness. Tax authorities must be enabled to clamp down on those who refuse to play by the rules. The OECD’s recommendations should help us ensure that economic activity is taxed where that activity takes place.

Labour
Where companies are able to shift profits and operations between countries, these issues need to be tackled at an international, as well as a national, level. We would like to see that, as a result of the BEPS project, taxes paid by multinational corporations will better reflect the actual location of economic activity. We want developing countries fully involved in the process.

Lib Dems
Lib Dems would continue to work closely with other governments and the OECD to reform international tax rules, in order to increase the consistency of tax treatment and reduce the ability of large businesses to avoid tax by shifting income and profits between countries. Key principles include greater banking transparency and effective information exchange between countries.

SNP
We understand that tax avoidance is an increasingly global issue – there should be nowhere to hide for those who seek to avoid taxation. We support efforts to support developing countries that are harmed by tax avoidance to tackle this issue in their own countries and to play their part in finding global solutions.
This issue will only be addressed when we have strong international rules in place, which are implemented by national governments, and where developing countries have the capacity and influence to address the issue fully.

Greens
We oppose tax competition between states. As under 5, we believe that companies should report their profits where they earn them and that we have a common consolidated corporate tax base. We have been lobbying hard for a full inquiry into Luxleaks and have achieved a special committee of the European Parliament. We are convinced that with determination we can ensure that companies pay a fair level of tax and that this could fund the infrastructure they rely on.

Sources: Conservative answer from David Gauke, written parliamentary answer, 24 November 2014
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Saturday 11 April 2015

Media and Politics
 
Election Q&A: (7) Resourcing HMRC
11 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

7. Do you believe HMRC is adequately resourced to carry out all the tasks required of it?

Conservatives
Yes. Conservatives point out that while increased efficiency has enabled reductions in staff numbers, the number of people working in compliance and enforcement has gone up under this Government. This has enabled HMRC to increase compliance yield.

Labour
The collection of tax is one of the most important things a government does and it is crucial that HMRC has the resources it needs in order to fulfil this role. We will make sure that resources in HMRC are deployed more efficiently: for example, by liberating resources currently tied up in administering the Government’s “shares for rights” scheme. Our independent review of HMRC will also examine resource prioritisation for tax compliance work.

Lib Dems
In government, Lib Dems argue they have driven a rebalancing of HMRC’s budget, to focus greater resources on tackling evasion and avoidance. The party would also “seek to ensure that sufficient funds are devoted to continuing efforts to improve the speed, quality and accessibility of the service HMRC provides to all taxpayers, particularly small businesses and individuals”.

SNP
We condemn the cuts implemented by successive UK governments to HMRC, which have left staff over-stretched and undermined the quality of service provided.

Greens
Certainly not. No government serious about reducing tax avoidance and evasion would have reduced HMRC staffing from 93,000 in 2004 to 52,000 in 2015. We have called for an increase in the number of tax inspectors so that it at least equals the number of accountants working in large and specialist accountancy firms seeking to help their clients avoid tax. We would increase staff by 15,000 per annum. We would also focus HMRC effort on the wealthy rather than those on average incomes. Specialist investigators can bring in many multiples of their salary through increased tax revenue.

Sources: Conservative answer from David Gauke, Treasury Questions, 10 March 2015
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Saturday 11 April 2015

Media and Politics
 
Election Q&A: (6) HMRC powers and taxpayer rights
10 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

6. Are you happy with the current balance between HMRC’s powers and the rights of taxpayers? If not, what would you change?

Conservatives
Ministers defend the Government’s actions as maintaining an appropriate balance between HMRC’s powers and taxpayers’ rights. David Gauke argues that, under the previous government, “HMRC did not get the support it needed to take effective action against those dodging taxes.”

Labour
This is clearly a delicate balance. HMRC needs to be equipped to perform its key function of collecting taxes. However, the outcry over this Government’s plans for the direct recovery of debts showed how easy it is to mismanage the balance between equipping HMRC and ensuring sufficient taxpayer safeguards are in place.

Lib Dems
Lib Dem ministers have strongly supported measures such as accelerated payment notices and the new strict liability offence for offshore evasion, arguing that they are necessary to deal “with the fact that a small minority felt it perfectly OK to indulge in tax avoidance and commit the crime of tax evasion.”

SNP
The SNP in Government has taken an approach to devolved taxes which balances the rights of taxpayers with ability to collect all taxes owed to ensure that our cherished public services are properly funded.

Greens
We are utterly opposed to negotiation between corporations and HMRC which indicates to citizens that the rich are exempted from taxes because of their power. We believe that HMRC needs the support of a strong anti-avoidance rule and a large increase in staff numbers.

Sources:
Conservative answer from David Gauke, House of Commons, 11 February 2015
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from parliamentary statement by Danny Alexander, 19 March 2015
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Friday 10 April 2015

Media and Politics
 
Election Q&A: (5) Anti-avoidance strategy
10 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

5. What are the key planks of your anti-avoidance strategy?

Conservatives
David Gauke describes the Government’s strategy as follows: “We will create a competitive regime on tax. We will make it easy for you to do the right thing. But you actually have to pay those taxes.” George Osborne has highlighted the Government’s record on tackling avoidance: “More than 40 tax avoidance schemes or loopholes have been closed… We came in, closed the loopholes, introduced the anti-abuse rule, got rid of the abuse of partnerships by hedge funds, got rid of the abuse of stamp duty by the richest in our society and started collecting the tax that should have been collected long ago.” Looking ahead the party points to the Diverted Profits Tax and the Government’s leading role in pushing forward the OECD/G20 BEPS project. At Budget 2015 the Chancellor announced a range of new measures targeting those who persistently enter into tax avoidance schemes, as well as plans to issue more accelerated payment notices and clamp down on employment intermediaries.

Labour
The next Labour Government will act where the Tories have failed in tackling tax avoidance. This will include making tax havens with links to the UK publish information about beneficial ownership, adding penalties to the GAAR, making sure hedge funds aren’t able to avoid paying stamp duty on shares, ensuring umbrella companies aren’t used to avoid tax and National Insurance by exploiting expenses rules and scrapping the Government’s failed ‘shares for rights’ scheme which has opened up massive opportunities for tax planning.

Lib Dems
As well as claiming credit for existing government measures, the party says that in the next Parliament it would continue to push for international tax reform and strengthen the general anti-abuse rule into a general anti-avoidance rule. It would also introduce rules to prevent earnings stripping through payments of excessive interest on related party debt.

SNP
We believe that tax avoidance is immoral and that there should be a zero tolerance approach to the issue, with an effective tax authority that’s going to clamp down on it and prosecute people.
When establishing Revenue Scotland, which administers devolved taxes, we ensured that they can combat tax avoidance as vigorously as possible by containing a wide-ranging General Anti-Avoidance Rule (GAAR). This rule will allow them to take robust counteraction against artificial tax avoidance schemes – not just the most abusive end of the spectrum.
Until such a time that the Scottish Parliament has the full control over all powers of taxation, we would support the UK Government matching the provisions of the Scottish GAAR.

Greens
We are working through the European Parliament ECON and TAXE committees to address these issues on an EU-wide basis. The key components of our strategy are: mandatory country-by-country financial reporting; a common, consolidated corporate tax base (CCCTB), which would provide for a uniform definition of profit across the EU; a public register of the beneficial owners of all businesses. Reform of the EU parent-subsidiary directive, the interest and royalties directive and the mergers directive must all be revised to close all existing loopholes. And we would increase HMRCs resources.

Sources:
Conservative answer from David Gauke speech at HMRC Stakeholder Conference, November 2014; George Osborne, House of Commons, 23 February 2015; George Osborne’s Budget statement, March 2015
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Friday 10 April 2015

Media and Politics
 
Election Q&A: (4) Tackling tax complexity
9 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

4. Are you concerned about the complexity of the UK tax system – and if so, what do you propose to do about it?

Conservatives
Tax simplification is a key focus for the Conservatives. The party promised an Office of Tax Simplification in its 2010 manifesto and delivered on that promise in government. At HMRC’s Stakeholder Conference in 2014 David Gauke explained: “Simplifying the tax system doesn’t just make life easier for individuals and businesses. By making the policy easier to understand, you also increase compliance – maximising the benefit to the Exchequer.” At Budget 2015, the Chancellor announced two major simplifications - abolishing Class 2 NICs for the self-employed, and abolishing the annual tax return.

Labour
This Government is responsible for the longest Finance Bill in UK history and according to the ICAEW we now have the longest tax code in the world. This additional complexity imposes extra compliance costs on British businesses, and increases the burden on HMRC’s limited resources. There is clearly work to be done. We are committed to a straightforward tax system, striving for the minimal level of complexity needed for a robust regime that supports investment, enterprise and innovation.

Lib Dems
A simplified system benefits taxpayers and government alike, providing greater certainty and less bureaucracy. Lib Dems would simplify personal tax returns by pre-completing them with relevant information held by HMRC, provide more flexible options for contacting and interacting with HMRC, make greater use of ‘sunset clauses’ and renew the mandate of the OTS.

SNP
We believe the UK tax system is complex and inefficient. The Scottish approach to taxation, that the Scottish Government has taken with regard to devolved taxes, is founded on Adam Smith’s four principles: taxes should be certain, convenient, efficient and proportionate to the taxpayer’s ability to pay. We believe that this approach should be extended to all taxation in the UK.

Greens
We believe that a complex tax system encourages complex webs of tax avoidance involving the wealthy as well as bankers and accountants who support them. We would strengthen and enforce the general tax avoidance rule and, have pledged to introduce a Tax Dodging Bill in the first 100 days after the election. Our policies of abolishing VAT and NI would in the long run also help to simplify the tax system. Although our proposed introduction of progressive tax bands would add complexity, tax in the different bands could be collected automatically through PAYE. We also think there is scope to reduce many of the existing exemptions and allowances ¬– why for example should there be a capital allowance for building a polluting power station?

Sources:
Conservative answer from David Gauke speech at HMRC Stakeholder Conference, November 2014; George Osborne’s Budget statement, March 2015
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Thursday 9 April 2015

Media and Politics
 
Election Q&A: (3) Taxing to change behaviour
9 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

3. To what extent should the tax system be used to change people’s behaviour?

Conservatives
The Conservatives argue that you cannot micro-manage people through the tax system but you can influence people in a positive way, for example income tax cuts to make work pay and incentives for businesses to invest in R&D. The party also favours using the tax system to send signals of the type of behaviour government supports, such as recognition of marriage through a transferable allowance. While still seeing a role for green taxes the party has in recent years emphasised the risks of raising them too high, freezing the carbon price floor and compensating manufacturers in some sectors where green levies were felt to be damaging their competiveness.

Labour
Environmental taxes have an important role in tackling climate change as well as bringing in revenue. Also, one of the most important behaviours that a tax system can change is ensuring that everyone pays their fair share of tax by ensuring that the ramifications of not doing so are made explicitly clear. This is why a Labour Government would bring in penalties, of up to 100 per cent of the value of the tax which was avoided, for the General Anti-Abuse Rule.

Lib Dems
Any tax system encourages and discourages certain types of behaviour. In particular the party supports incentivising of environmentally beneficial activities and penalising of polluting activities.

SNP
We believe that the tax system can be used to change behaviour where appropriate. For example, the Scottish Landfill Tax is a cornerstone of Scotland’s Zero Waste Plan, which aims to maximise the resource value of materials in our economy, ensuring that landfill is a last resort option.

Greens
We believe strongly in the strategic role of tax as well as its importance in ensuring redistribution and funding public services. In particular, we believe that fossil fuels should be taxed heavily to reduce CO2 emissions and that the anomalous exemptions for aviation and shipping fuels should be ended immediately. Resource taxation will be charged on the use of raw materials, and will reflect their relative scarcity and the environmental disruption caused by their extraction. The raw materials which would be subjected to such resource taxes include fossil fuels, hardwoods, metals, minerals and aggregates.

Sources:
Conservative answer from David Gauke’s response to CIOT/ATT Q&A, March 2010; Autumn Statement 2013
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Thursday 9 April 2015

Media and Politics
 
Non-doms: A short briefing note
8 April 2015

The Labour Party announced this morning that, if elected as the next government, they would abolish ‘non-dom’ tax status. Our Q&A below explains what a non-dom is and how the system works.

The CIOT is of course strictly politically neutral and nothing in this post should be interpreted as endorsement for or opposition to any particular party’s policy.

What does non-dom mean?

‘Non-dom’ is shorthand for a person who is not domiciled in the UK.

Domicile is a common law concept rather than a UK tax rule. It is used to decide which legal system applies where someone has family or personal connections in different jurisdictions. It’s particularly relevant to marriage, divorce and succession issues.

Domicile is not the same as nationality or citizenship or residence. You can only have one domicile at any point. You can be resident for tax purposes in the UK (for example by visiting regularly or living here for some time) but remain domiciled in another country because an individual’s domicile is broadly the place where he or she has their permanent home.

How do you get your domicile? Can you change it?

Everyone acquires a domicile of origin at birth (most often your father’s domicile) but it is possible (although difficult) to displace a domicile of origin with a new domicile of choice if you settle permanently in a different country and sever all your links with the previous country of domicile.

When is non-dom status relevant to tax?

UK tax legislation uses the concept of domicile in some circumstances to determine an individual's liability to income tax, capital gains tax and inheritance tax.

People who are UK resident and domiciled in the UK are liable to UK tax on their worldwide income and capital gains. However, individuals who are UK resident but not UK domiciled are liable to UK tax on all their income and capital gains which arise in the UK, but have to pay UK tax on overseas income and capital gains only if those funds are remitted to the UK. This is known as the remittance basis of taxation. Very broadly funds are remitted to the UK if a person receives, uses or benefits from them in the UK. The remittance basis must be claimed (except in some circumstances, eg where unremitted income and gains for the tax year is less than £2,000).

There is a charge for accessing the remittance basis where the claimant has been resident in the UK for an extended period. New charges apply from 6 April 2015:
• £30,000 for those UK resident for 7 of the past 9 years (unchanged from previous years)
• £60,000 for those who have been UK resident for 12 of the last 14 years
• £90,000 for those who have been UK resident for 17 of the last 20 years

What about inheritance tax?

Inheritance tax applies to an individual’s worldwide property if an individual is UK domiciled but to their UK property only if an individual is domiciled in another country. In some cases an otherwise non-UK domiciled individual may fall within the UK IHT regime by being deemed UK domiciled for IHT purposes only. This occurs in 2 main circumstances:

• Where a non- UK domiciled individual has been resident in the UK for at least 17 out of the previous 20 years;
• Where an individual remains within the charge to IHT for 3 years after ceasing to have a UK domicile.

In addition a non-UK domiciled individual can in certain circumstances elect to be treated as UK domiciled for IHT purposes.

How many non-doms are there?

As of 2011 (which is the latest figure we’ve found) there were 116,000 non-doms registered with HMRC. Of these 49,000 elected to be taxed on the remittance basis (see above) but only 5,000 – 6,000 of these had to pay the remittance charge. (As stated above you only have to pay the charge if you have been UK resident for 7 of the past 9 (or 12 of the last 14, or 17 of the last 20) years.)

But note that not everyone entitled to non-dom status is included in that 116,000 figure. As an HMRC spokesman explained to the publication Tax Journal: “Individuals are only required to indicate their domicile status where it has a bearing on their UK tax liability; there are a significant number of non-doms who do not indicate their domicile status on their tax return, for example those who chose not to be taxed on the remittance basis.”

In November 2012 Treasury minister Lord Sassoon told the House of Lords: “HMRC only holds information on those individuals who are required to declare their domicile status because it is relevant to their tax affairs. HMRC do not hold any estimates for the number of individuals who are entitled to claim to be non-domiciled but choose not to do so.”

Are all non-doms wealthy?

No, but those who choose to be taxed on the remittance basis can reasonably be assumed to be wealthy / high income individuals.

Are all non-doms immigrants?

No. Many are: some are wealthy entrepreneurs choosing to locate in the UK, some are individuals who come to the UK for employment at all levels of remuneration (bankers and footballers, but also doctors, nurses and fruit pickers), some are students. In theory at least, they are only in the UK temporarily and will return to their home countries in due course. But some non-doms will have been born and brought up in the UK, and inherited their non-UK domicile from their father or even grandfather (it usually passes down the male line). Many in this latter group in particular will gain no advantage from their non-dom status (because they have no overseas income, gains or assets) – it is just an accident of ancestry.

Do other countries have the same system?

Not many. Britain is unusual in allowing permanent residents to remain non-doms. Ireland and Switzerland have similar systems.

How does being a non-dom save you money?

As set out above, you are only taxed on overseas income and gains when you bring it or them to the UK or otherwise enjoy them here. In broad terms, if you don’t bring it to the UK you won’t be taxed on it. To save money the amount of tax you save must be larger than the remittance basis charge (see above) the UK Government currently levies on you.

How much would abolishing non-dom tax status raise?

It’s very hard to say.

As stated above 5,000 - 6,000 non-dom individuals choose to pay the remittance basis charge (RBC) each year. A further 43,000 or so are taxed on the remittance basis but haven't been in the UK long enough to pay the RBC. These are the people abolishing non-dom tax status would affect. It is reasonable to assume those people paying the RBC are opting to do so because it costs them less than paying full tax on their worldwide income in the UK would. However we don’t know how much they are saving because they don’t at present have to declare their worldwide income to the UK authorities. Even if we did we would then need to factor in behavioural effects – that is wealthy people who might leave the country for somewhere with lower tax rates, or who might find other ways of rearranging their financial affairs (eg by transferring assets to other family members). We don't know how many of the 43,000 would pay a significant amount of tax in the UK if the remittance basis were abolished or radically restricted (Labour's proposal).

Could it cost money?

It’s possible, once you take into account knock-on effects. The amount of tax raised from non-doms themselves would almost certainly rise if their non-dom status was taken away (even allowing for some behavioural effects – see above). But the argument made by those who think it might cost the Exchequer money is usually based around the wider benefits of having wealthy non-doms in the UK – employing people, basing companies here, paying VAT and other taxes on the expensive goods and services they consume.

What are Labour proposing?

To abolish non-dom tax status. However they would allow some exceptions for those resident in the UK for only a short period. On his blog, Ed Balls states:
“our plans… do allow for temporary residence for people genuinely here for a temporary period, for example people who are here for two or three years at university. Not to have a short-term option would mean students or business visitors being deterred from coming to our country.”

Patrick Stevens
CIOT Tax Policy Director
Wednesday 8 April 2015

Media and Politics
 

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