ANNOUNCEMENT: UK Adviser is now PA Adviser. Read more.

Budget: Non-doms and tax avoiders in Osbornes crosshairs

Unveiling his Budget, George Osborne said non-doms living in the UK 12 years will now pay £50,000

Budget: Non-doms and tax avoiders in Osbornes crosshairs

|

The increase in the so-called remittance basis fee for non-doms, along with a crackdown on those who seek to avoid rather than merely evade their UK tax obligations, had been expected, as the Coalition Government seeks to tap new sources of funding in order to ease the burden on low- and middle-income families by raising their income tax threshold and cutting the duty on petrol, which is to be reduced by 1p a litre from 6pm this evening.

Under the remittance system, non-domiciled UK residents may elect to pay the fee rather than be taxed on their income.

For those non-doms who have been resident in the UK for at least seven years but fewer than 12, the charge remains at £30,000. Also under Osborne’s budget, the remittance charge will not apply in cases in which a non-dom remits foreign income or capital gains to the UK for the purpose of commercial investment in its businesses.

Osborne also said he would reduce corporation tax by 2% from next month, rather than the 1% he had previously announced, and that it will continue to fall by an additional 1% in each of the following three years until it reaches 23%, as he looks to make Britain more competitive with other countries. The current rate is 28%. 

The cuts will make Britain’s corporate tax "16% lower than America,11% lower than France, 7% lower than Germany" and give it "the lowest corporation tax in the G7", Osborne said in his speech before the House of Commons, which lasted almost an hour.

"Let it be heard clearly around the world," he added, "from Shanghai to Seattle, from Stuttgart to San Paolo: Britain is open for business."

Then, to a roar from his audience, Osborne continued: "And to ensure that this is not a net tax cut for banks, I am adjusting the bank levy rate next year to offset it effects.” 

Banks ‘singled out’

This singling out of the banks "at a time when the other industries are benefiting from reductions in their tax rates" will not go down well in the City, Berwin Leighton Paisner head of tax Michael Wistow predicted, adding that "the political temptation to hammer the banks through the banking levy" had proved too strong for Osborne to resist.  

Wistow said the Budget did contain "many welcome announcements", from fundamental changes to controlled foreign companies rules to simplification in gift aid and an announced consultation on merging National Insurance Contributions with income tax.

“However,  “the chancellor…has not followed the logic of his own thinking through to the 50% income tax rate," Wistow went on, referring to an Osborne plan, revealed in the Budget, to ask HM Revenue & Customs to examine how much extra revenue the 50% tax on earners of £150,000 or more actually brings in. The controvesial higher rate took effect last April.

In his speech, Osborne indicated that the 50% tax was considered temporary and would be cut as soon as possible.

“Asking the HMRC to find out the truth about the value of the 50% tax rate makes no sense when the figures are already well known," Wistow said. "The truth does not lie in HMRC’s words but in those of the Chancellor: the tax system must be consistent with Adam Smith’s principles of simplicity, transparency, efficacy and certainty."

Tony Bernstein, senior tax partner at HW Fisher & Co, noted that for a Government keen to discourage tax avoidance, telegraphing the fact that the 50% rate is to be abolished as soon as possible could serve to encourage wealthy individuals and owner-managed businesses to "manipulate the timing of their income" to take advantge of the predicted top rate reduction.

As for the non-dom charge, Bernstein added: "out of 123,000 non-doms completing UK tax returns, only 5,400 actually paid the £30,000 charge in 208/ 2009. [So while] this increase [to £50,000] may keep certain sectors happy and make the headlines, [it] is likely to be of limited practical consequence."

Non-dom exodus seen

Andrew Watt, managing director, tax disputes and investigations, for accountants and business consultants Alvarez & Marsal Taxand, was among a number of experts who predicted non-doms would leave rather than pay the new £50,000 annual charge in Osborne’s budget. (This was also the conclusion today of the Society of Estate & Trust Practioners.)

"Reports suggest that something like 16,000 non-doms have quit the UK since the shake-up in the rules by the last Government," Watt said.

"The increase in the annual levy announced today is likely to lead to an increase in this number, despite the relaxation for remittances invested in UK businesses which may indeed  open up an easily exploitable avoidance loophole."

Berwin Leighton Paisner’s Wistow noted that Britain’s non-doms would be relieved to see that there  will be no more changes to their tax position in current Parliament, "and encouraged they are not going to be penalised for bringing in funds to the UK if they are invested in British business".

But he shared Bernstein’s view that the increase in the levy to £50,000 is "highly unlikely to raise the revenues predicted, not least because it will discourage wealth creators coming to the UK precisely at a time we need them the most".

Wistow noted that the Adam Smith Institute last week pointed out that the current £30,000 levy is causing the Revenue to lose money rather than raise it, as non-doms leave. Bernstein said this begged the question whether it would be any different with a 50,000 levy.

"The government has missed the opportunity to repair the social contract which existed for so long between non-doms and the UK, until the changes introduced in 2008."  

Latest Stories