Britain may tax Citizens on worldwide earnings like the US does: Merryn Somerset Webb

As the UK budget looms, Chancellor Jeremy Hunt faces economic challenges, contemplating changes to the non-domiciled tax regime. The proposal suggests altering the system or abolishing it, potentially generating revenue but raising questions about its impact on wealthy expats. Amidst political manoeuvring, the overlooked opportunity of taxing UK passport holders living abroad emerges, considering their newfound voting rights. With 3.5 million eligible expats, this untapped revenue source prompts a reevaluation of representation and taxation for globally dispersed citizens..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..By Merryn Somerset Webb.With only a few days until the next UK budget, there's a faint sense of desperation in the air. How on earth can Chancellor of the Exchequer Jeremy Hunt pull a few rabbits from the hat in a world of record government debt, a nasty deficit and inflation still running at double the Bank of England's target? .___STEADY_PAYWALL___.One idea that comes around again and again is to have a go at the non-domiciled tax regime. At the moment, anyone who lives in the UK but is not domiciled here (i.e., there is an expectation they will return to another country) can chose to pay tax on foreign gains and income only when they are remitted to the UK (the remittance basis). There is no cost to doing this for the first seven years of residency. It then costs £30,000 ($38,019) for another four years and £60,000 a year for the next two. After that — 15 years in total — you can't pay your way out of the UK tax system any more — you have to pay tax on all income and gains in the same way as everyone else in the UK..There have long been complaints about all this (why should rich foreigners pay less tax than rich Brits?), and Labour has suggested that it would scrap the arrangement completely, raising £3.6 billion for the Treasury along the way. So what might Hunt do? He might simply adjust the system — asking so-called non-doms to pay to circumvent the UK tax system earlier, thereby paying more and getting fewer tax-free years in total. For instance, they could pay £10,000 in year one, see it go up by £10,000 a year until it hits £100,000 in year 10, and then they'd become taxed as a dom. Labour may reduce the tax break to cover just four years (which it reckons should still bring in £4 billion)..The other option would be to cancel the remittance basis option completely — and to offer arrivals the option of being taxed as a dom immediately or paying a much higher annual fee to cover everything (£100,000 would match nicely with what other countries do, say the analysts at accountancy RSM). .Both would be easy to implement, politically amusing for the Conservative party (Labour would then have to find the cash it promised from non-doms elsewhere) and should raise some revenue. The question is how much..Read more: Japan's Nikkei hits record high: A crucial economic turning point.The non-dom regime exists because successive governments have believed that it makes sense — incentivizing well-off foreigners to bring at least some of their wealth and, hopefully, their economic activity into the UK. A 2022 study from the London School of Economics suggested that almost no non-doms would leave the UK if their status changed — so the Exchequer would receive almost 100% of the tax that would be due on the nearly £11 billion that non-doms earn offshore each year. This is possible of course. The UK is a nice place to live..But it is very far from given: Other studies suggest that the effect could end up negative (very highly paid footballers are particularly footloose it seems). There is a long history in the UK of forgetting that tax incentives, both actual and indicative to the direction of travel, matter (see pretty much everything that happens in Scotland, for example). The last major alterations to the non-dom rules came in 2017. The changes at the time were not devastating for the very well-off — they still got 15 years of favorable treatment — but they also led to a wave of departures from the UK..Those pro the abolition of favored treatment for non-doms point out that total revenue from the coterie fell very little post 2017. That's true but think about how much they might have gone up in those boom years had those who left instead stayed..At the same time, the world around the UK has been changing fast in the past seven years. London is still nice, but other cities favored by those keen to make money have become more livable (think Dubai). If the barrage of emails I'm getting on the matter is anything to go by, London-based advisers to non-doms have already made lengthy lists of non-dom-friendly regimes elsewhere. If those consultants get their way, and any changes see more non-doms leave the UK, then cancelling their tax privileges will end up being nothing more than expensive eat-the-rich virtue signaling — it definitely won't provide the oodles of cash both parties are hoping for. .Within all this, the UK government might be missing a mega money-raising trick. It makes sense to charge those with foreign passports living in the UK tax on their worldwide incomes. Might it also make sense to tax those holding UK passports who are living abroad on their worldwide incomes too? That's the case for those holding US passports..Until now, UK expats who have lived abroad (or been domiciled abroad for tax purposes) for more than 15 years have not been entitled to vote in UK elections — which given they don't pay UK taxes has seemed reasonable. No representation without taxation. But that has just changed. From this year, anyone with a UK passport can vote in UK elections as long as they were once resident and once registered to vote. On government estimates, that adds up to around 3.5 million people and these people are generally more highly paid than passport holders living in the UK..A UK passport has value — it regularly sits in the top five in the world for visa-free travel, for example, and comes with access to a huge range of non-contributory state benefits. .Read also:.Mailbox: Tax reforms can drive NPO donations🔒 FT: Macron says sending western troops to Ukraine cannot be ruled out🔒 FT: Russian victories shake global leaders' faith in Ukraine war prospects.© 2024 Bloomberg L.P.

Britain may tax Citizens on worldwide earnings like the US does: Merryn Somerset Webb

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