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Experts disagree over Tory tax plan

03 October 2007
Categories: News , Residence & domicile
The shadow chancellor's newly announced plan for people holding non-domiciled status has divided opinion among tax professionals

George Osborne's newly announced plan for people holding non-domiciled tax status in the UK has divided opinion among tax professionals.

The shadow chancellor told delegates at the Conservative party conference in Blackpool that under the next Tory government an annual flat-charge of around £25,000 will be incurred by everybody who registers for non-domiciled status.

Independent tax consultant Kevin Slevin welcomed the proposal as 'an obvious way to introduce greater fairness'.

Kevin said: 'Having floated this idea myself in lectures over the past four or five years, I can hardly say now it's a bad idea.

'The starting point could be simple, with a self-assessment return giving the option of paying tax on the normal basis or opting to take advantage of the non-dom status by ticking a box that automatically triggers a liability of X amount.

'The way I see it, the flat-rate charge would have to be permanent; once opted into, it would continue to apply to a person while resident in the UK. By opting for the levy, the taxpayer would also agree to forego the ability to claim UK tax relief in respect of losses on overseas activities'

However, not all Kevin's peers share his positive view. Paul Howard, an associate partner with Chiltern, said the Conservative's plan 'seems a bit of a gimmick' and admitted to being 'very sceptical' about the idea.

He said: 'It's difficult to know how it will work. Are the Tories saying that anyone who is non-domiciled will pay? If you don't pay, will you have to return all your income?

'The trick would be to pitch the fee at a level that didn't scare off people from being non-domiciled in the UK, but was also high enough to bother running the scheme. Obviously, £25,000 would be an appealingly low amount for very wealthy people in comparison to paying taxes; it effectively puts a ceiling on their liabilities - if they have any.'

Paul also questioned how those liable would be taken into account: 'Will the scheme be linked with a comprehensive review of who holds non-dom status?'.

Kevin Slevin touched upon a similar issue. He said: 'The Chancellor would, I suspect, have to get to grips with the fact that many people are paying tax in the UK without realising that their place of domicile is located outside the UK. 

'I would expect a revision to the domicile definition to introduce a special tax-related meaning of the word, so that most, if not all, of those born here are considered to be domiciled here.'

Arguably the main hobbling point for the proposed new tax system, said Paul Howard, is also one of the oldest: politics.

He said: 'People have been talking about this for years, but nothing has been done because it's such a political hot potato.

'For the Conservatives, it's an easy way to get round the problem of how they'll raise money for the other things they've promised: increasing the inheritance tax threshold to £1 million and abolishing stamp duty for some first-time buyers. But I don't think it will be as simply as they suggest. It's quite a radical idea in terms of UK tax'.

Kevin admitted that 'problems will… arise as regards the transition. [For example,] how will the system cope with remittances of income or capital gains arising prior to the introduction of the new system?'

He concluded that choice of payment methods may be the best approach for all UK residents.

'The fairer system is that we should all be allowed to opt to pay tax on our overseas income and gains by paying either a flat rate or the 'proper' tax due. My domicile status should not entitle me to organise my affairs so as to pay less tax than someone domiciled in, say, England.'

Categories: News , Residence & domicile
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