As readers of this blog will know I have for some time proposed a 'passport tax'. As I have said previously:
The principle is simple: if you have the passport you pay tax on your worldwide income unless tax resident in a state with a full double tax agreement with the UK (which is why we should give them sparingly) .
To give up the passport you would have to break all ties with the UK — including any right to return. OK, European cooperation would be needed on that, but I don't see it as being hard to secure.
I note that this weekend the Telegraph suggested:
A new 'citizenship tax' for all British passport holders — including expatriates — could help a hung Parliament ease ballooning budget deficits without hurting most voters, accountants claim.
They say Britain may follow the American Internal Revenue Service example and require every citizen to file tax returns regardless of their country of residence.
Following [the] inconclusive general election result, this option could appeal to a coalition government desperate to balance the books. It would raise substantial extra revenue without costing existing taxpayers a single penny more.
However, expatriates who currently pay little or no tax to HM Revenue & Customs (HMRC) could soon find that retaining their passport would cost much more than its current £77.50 issue price. Now that nearly one in 10 British citizens lives overseas — that's a total of 5.5m expatriates — the new levy could be worth billions.
As they add:
Funnily enough, the first man to tell me that Britain might follow the American example of a citizen tax hastily emphasised that his name must not be linked to it. Without wishing to compromise his confidentiality, it's fair to say his international private bank earns part of its profits by advising wealthy globe-trotters on how to avoid tax.
I have a strong suspicion I know who that person is. I also know that if I'm right he's very familiar with my thinking and is no doubt reiterating it.
He's also in that case right to know that it would raise a significant sum — we both have good reason for thinking it would. Which, rather perversely is why it has not happened, yet.
Might it? Some suggested not. For example:
Richard Mannion of accountants Smith & Williamson said: “Clearly the government is going to need to find extra taxes in the foreseeable future — so nothing is off limits. This system seems to work well for the USA and is regarded by Americans as the price to be paid for the green card.
“However in view of the lack of experienced staff in HMRC I do have real doubts about their ability to police any new system like this.”
Others sought to express similar doubt. They're wrong to do so. This could work very well.
First, note no one living in Europe would be subject to it. I suspect that would have to go without saying.
Second, I think there would be a “white list” of states to which it would not apply. Like the US and other major states such as Japan, Australia, Canada and so on where the tax system is considered robust, information exchange is good and double tax treaties work.
Thirdly I'd propose it applied to no one earning less than the income tax higher rate tax band — so taking all working voluntarily overseas, for aid agencies and the like right out of the charge. This replicates a US provision.
After that you're left with the cases you want to tackle: those living in states with no tax agreement with the UK, with UK citizenship and wanting to retain it and with substantial potential tax being avoided by their residence abroad — probably in a tax haven.
Yes they'll squeal and the Crown Dependencies will say this is unjust as they're not UK citizens — which I'd agree for those with genuine claim to be local (which is rigorously defined, remember in the case of Jersey and Guernsey at least). But the reality is that this will massively clamp down on tax abusers.
And who better to pick up the pain right now.
My 'colleague' who might have been talking to the Telegraph has a conscience I think. My guess is that's why he's been talking. He knows that this is just. Precisely because it could bring in billions now that we need them at no cost to the honest people of the UK.
Bring it on, as I think some say.
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I assume that those caught by the “passport tax” would be entitled to NHS paid treatment outside the UK, the full range of welfare benefits etc.
Why do you propose to do with all the holders of dual-citizenhip EU-UK? Say someone is British and Italian and abandons his/her UK citizenship. Unless you plan to re-negotiate the EU’s free movement charters, there is nothing to prevent that person from exercising his/her EU treaty rights to live the UK.
[[First, note no one living in Europe would be subject to it. I suspect that would have to go without saying.]]
So what about people who leave the UK to live in the Republic of Ireland? They become tax resident in Ireland, but as non doms they will pay Irish tax only on a remittance basis. Also, what about people going to the Isle of Man?
Well all these nice rich people will be made very welcome on the Isle of Man. I think over here we’re starting to gush about this hung parliament thingy you lot are all talking about eg from Manx Radio News: http://www.manxradio.com/newsread.aspx?id=44890
So, come to the Isle of Man, “Oh Island so strong and so fair” as we say in our National Anthem. 🙂
@Justin
In most cases it does now
Even if no tax is paid
@Ted G
And if they are UK resident they are taxed here
If they are Italian resident they are taxed there
As now
If they live outside the EU they remain UK resident
That’s not a restriction on EU movement at all
@peter verstage
Go to the IoM by all means
Pay tax here
Go to Ireland by all means
How are you going to make a living?
@AlbertR
The IoM problem can be overcome – by applying a “tail” to departure for such places i.e. if you leave the UK for the IoM a ten year tail applies when you’re UK resident
Problem solved
@Richard Murphy
Richard,
I was referring to a quote of yours saying that all UK citizens renouncing their citizenships would not be allowed to return to the UK.
So, taking my example again, there is a dual UK-Italy national who lives in say, Argentina. That individual renounces his/her UK citizenship and remains solely Italian (or Italo-Argentinean). Then that individual chooses to move to the UK as an (Italian) EU citizen. Under EU treaty law, that cannot be prevented.
Ted G
Point taken
But for many who leave for tax randomly acquiring another EU [passport is not that easy
Although I admit I have two
Richard
But if holding a British Passport is going to be the basis for taxation, then what about British nationals who have a British Passport issued in the Isle of Man?
If long term residence in the IoM can be proven that’s OK
If not – then it’s like any other British passport
We really can’t be abused by a little place like the IoM
Haven’t you understood that yet?
And yes – this could be legislated
Richard, some people do believe in enterprise and self-reliance. I would say they will take their business with them and do just fine running it from a location outside London.
This would mean that a British citizen with a British passport who is a non-dom because he’s lived a period in the Isle of Man would get favorable treatment- surely Richard you are not advocating that!!!
@peter verstage
No of course not
If we can be this radical on residence then we can get rid of domicile for good
Richard
@Richard Murphy
Let me just confirm my understanding:
So if I, a UK passport holder lives and works in China, you would like to see him taxed AND at the same time, the UK government will pick up the tab for all his medical expenses in China (including dentist) AND he will still be entitled to all the welfare payments/benefits I would have been entitled to (eg child payments etc).
I don’t agree with you that the UK government is paying benefits and medical expenses for UK passport holders outside the country – how do you come to this conclusion?
Justin
No of course the Uk government will not pay all his medical expenses
That’s why he pays Chinese tax
But some benefits may be payable – yes
For example, millions of pensions are now
They would, of course, be taxed here
Richard
@peter verstage
Peter, you seem to be confused between the issues of non-residence and non-domicile, and Richard (who is also confused on the issue) is not helping much.
One does not become a non-dom by living outside of the UK, only a non-resident. Fundamentally different concepts. As far as I can tell, Richard’s proposal would not have any impact on the domicile provisions; and in an event, the immense majority of non-doms are foreign nationals, so would be unaffected by the “passport” tax.
@Ted G
I’m not the slightest confused
30 years as a practitioner leaves me no room to be so
I am simply saying this plan presumes the abolition of the domicile rule – and rightly so
@Richard Murphy
In isolation, the passport tax plan assumes no change to the domicile rules.
In fact, since all but a very tiny minority of non-doms are foreigners, the passport tax will mean no change at all.
Well I’m glad you know so much about it
Can you send met he version you’re working from?
You might also like think about revising your conclusion: as an anti-avoidance mechanism targeted against Brits leaving it would have significant impact
Of course
But some pointed out you can be non dom and a British citizen – which is true
So I dealt with the issue of domicile by saying it must go
Now how could I be clearer?
Sorry I’ve confused you. I was actually having a go at Richard who (rightly) argues that doms are discriminated against by giving tax advantages to non doms. But here is another proposed unfair discrimination. Someone who is a British citizen, with a British passport issued in the Isle of Man, with the right to call upon the services of overseas diplomatic missions if in trouble, would have an unfair advantage insofar as he could live anywhere in the world and not be taxed under the proposed passport-based system.
@Richard Murphy
Richard, I am only going by what is on your blog, and whatever links you post.
But there is a contradiction here:
– the domicile rules deals with the tax liabilities of (almost universally) not-UK nationals resident in the UK.
– the “passport rule” deals with the tax liabilities of UK nationals non-resident in the UK.
The two things are 180 degrees apart.
But the “passport rule” will still give an unfair advantage to UK nationals, non-resident in the UK, who are also non doms. They will keep their British passports with all the advantages (?) that entails, but will not be liable to UK income tax. This includes most of the people who live in the Isle of Man.
I agree that this exception, which really only affects a tiny minority of the non-domiciled population, is totally wrong. It must go.
So a UK passport holder living and earning in Hong Kong will be subject to your passport tax – what does he get in return for paying tax at the higher UK rate and only getting DTR for the lower Hong Kong rate of tax paid.
What is the justifiable basis for taxing this passport holder.
@Justin
They rely on the UK as their place of safe haven
And so they pay for it
@Ted G
Pedant
The domicile rule goes
Lock, stock and barrel
@peter verstage
Note previous comment
@Richard Murphy
I am not sure about the purpose of randomly insulting your contributors, I guess it is a reflection of your style.
There is a more fundamental point which I think has been missed throughout this discussion: how much exactly is this “passport” tax expected to rise. After all, I have been part of a US household for most of my adult life, held a green card for many years, and never paid a tax Dollar to the US treasury while living abroad. I do not believe that my circumstances are in any way exceptional among US expatriates and if my memory serves me well, the amount of tax raised form US expatriates is almost immaterial.
What makes you think that your “passport” tax would be more effective as a revenue raiser, especially considering that your are excluding all UK citizens living in the OECD (and even non-OECD EU nations)? On the face of it, you will end up with a tax whose implementation and enforcement costs far exceed potential revenues.
Please discuss.
@Ted G
Factual observation. No insult intended
This measure is aimed wholly at those who absue tax havens
$255 billion a year is lost to them
This will help recover the Uk share of that sum
Amply good enough for me
Do you realize that you will not only tax me as I have a British Passport and live in Bermuda, but all “Bermudians” with British Passports.
I don’t think they would take kindly to that. The same goes for other protectorates.
@Michael Hardy
Dealt with above the the Isle of Man
so we have 5 million uk citizens living outside the UK , of whom a mere 50,000 voted in the last election with stats available , so around 1% against the 65% of uk based voters , I would assume that you don’t plan to deny these taxpayers a vote ? In which case you are going to have millions of new voters all voting for whoever will say they will stop the tax … ?
@catsick
Why not
Australia, for example, makes it compulsory
@Richard Murphy
This makes no sense.
Any tax evasion that takes place in so-called “tax havens” happens because taxpayers deposit their assets there, and NOT because they move there physically.
What exactly will the “passport” tax do about this?
@Ted G
The aim is to cut off the offshore supply of bankers, lawyers and accountants from the UK
Richard, if this is the aim, I would be careful about keeping the expectations down.
The US system of worldwide taxation has not done much to stop the flow of US bankers to London, US accoutants to Cayman or US lawyers to Nassau.
Why would a UK “passport” tax on its citizens be any more succesful?
I hate sharing this with you Richard, but if you want such a proposal to have any credibility and any chance of success then it needs to be very narrowly targeted rather than a sweeping US style citizenship tax. Ireland has just introduced a “domicile” tax that would work equally well in a UK context. If you’re Irish domiciled, and you own at least €5m in Irish assets or business interests, and you are non Irish resident, then you are subject to a flat tax of €200,000 p.a. Nice and simple, and targets the people you don’t like, i.e. the wealthy who take up non residence, but who continue to maintain substantial business links with the UK. At the same time it doesn’t attack citizens who genuinely move abroad (believe it or not, not everyone moves abroad to avoid UK tax).
Strange you should base your proposal on the US model, given that this model is falling out of favour, both on principle and for practical reasons.
See the recent paper “The Case against Taxing Citizens” by Reuven S. Avi-Yonah at http://law.bepress.com/cgi/viewcontent.cgi?article=1120&context=umichlwps (PDF) which THOROUGHLY REFUTES the three possible arguments for global taxation, which are:
I. The benefits argument: US citizenship by itself confers benefits that justify taxation. But those benefits cannot be compared to the benefits derived from living in the US, and are identical to the benefits provided by other countries that do not tax their citizens living overseas.
II. The ability to pay argument: US citizens are part of a community and should contribute their fair share to the pool of income that is redistributed across the community. But we have in practice to give the country of residence the primary right to tax nonresident citizens, and therefore their income is mostly not available for us to redistribute.
III. The administrability argument is that citizenship is an administrable proxy for domicile. But it is a very imperfect proxy, and we already have an administrable basis for residence-based taxation in the physical presence rule. Citizenship-based taxation, on the other hand, is in practice unadministrable.
I think that this discussion amply demonstrates the awful mess that has been created by the large accountancy firms that derive their profits from the war on tax.
I am an ordinary (used to be “working class” maybe?) tax payer (proud to sometimes make enough profit to be liable) who has been forced to become tax resident in France (could? be considered a European country) because of children, home, investments etc., even though I continue to be self-employed in the UK.
I cannot afford an accountant, and I spend a couple of weeks every year trying to work out to whom I should pay which taxes. As a benefit, in recompense for my trouble, I lose much of my entitlement to medical care, and will probably soon lose all of it. This is in spite of the fact that I still pay the same tax and national insurance that I have paid for the last 35 years in the UK, and that there are quite a few treaties in place.
I pay tax on my french investments in France, which seems logical, but if I spend too much time in the UK (which I really need to do in order to make a living) the UK taxman sticks his finger up (I wonder which one?) and doubles my yearly accounting work.
Is it not sufficient that I pay without quibble all taxes arising on my UK income to the UK, and all taxes arising from my french income (and my UK savings AGAIN-TWICE!) to the french authorities. The fight to understand the rules, and the cost of medical care, have been imposed upon me entirely because of a near accident of nature (my becoming a father in another country), and because almost all rich people object with some near-fascist reasoning to paying any tax at all!
You all need to stop talking about further complication and decide globally to simplify the system.
Oh, sorry, I forgot, you need to make a living too!
@Richard Murphy
Dear Richard,
I agree entirely with your proposal but………
I think that this discussion amply demonstrates the awful mess that has been created by the large accountancy firms that derive their profits from the war on tax.
I am an ordinary (used to be “working class” maybe?) tax payer (proud to sometimes make enough profit to be liable) who has been forced to become tax resident in France (could? be considered a European country) because of children, home, investments etc., even though I continue to be self-employed in the UK.
I cannot afford an accountant, and I spend a couple of weeks every year trying to work out to whom I should pay which taxes. As a benefit, in recompense for my trouble, I lose much of my entitlement to medical care, and will probably soon lose all of it. This is in spite of the fact that I still pay the same tax and national insurance that I have paid for the last 35 years in the UK, and that there are quite a few treaties in place.
I pay tax on my french investments in France, which seems logical, but if I spend too much time in the UK (which I really need to do in order to make a living) the UK taxman sticks his finger up (I wonder which one?) and doubles my yearly accounting work.
Is it not sufficient that I pay without quibble all taxes arising on my UK income to the UK, and all taxes arising from my french income (and my UK savings AGAIN-TWICE!) to the french authorities. The fight to understand the rules, and the cost of medical care, have been imposed upon me entirely because of a near accident of nature (my becoming a father in another country), and because almost all rich people object with some near-fascist reasoning to paying any tax at all!
You all need to stop talking about further complication and decide globally to simplify the system.
Oh, sorry, I forgot, you all need to make a living too!