Non domiciles may have to accept HMRC are limiting previous freedoms to interpret tax in the UK says Sophie Mazzier
Back in 2002, HMRC began its operation to overhaul the generous system of taxation of those who are resident but not domiciled in the UK. The first major review of the UK's residence and domicile rules was announced by the chancellor of the Exchequer in that year's budget.
The announcement was followed in April 2003 by a joint paper issued by HMRC and the Treasury, somewhat coyly entitled 'Reviewing the residence and domicile rules as they affect the taxation of individuals: a background paper'.
HMRC had started with the premise that 'it is generally accepted as fair that those with the same characteristics are taxed in the same way. In the context of residence and domicile, the degree of connection of an individual to a country is an important characteristic, which may vary in intensity and over time. It is also generally accepted as fair that those with a long-term connection owe a special obligation to support the social structures of the state.'
The wise, however, will always have in mind the need to weigh this kind of fairness against Colbert's famous observation that 'the art of taxation lies in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing'.
Over the next four years the government published no other details of the review, simply stating that it was continuing. Perhaps (some professional advisors wondered) it was languishing on the 'too difficult' pile.
This wait ended when, in his pre-budget statement in October 2007, the then chancellor Alistair Darling announced that the government would consult on introducing a new annual ’30,000 charge (the RBC) which non-domiciles would have to pay if they wished to be taxed under the remittance basis. However – perhaps recognising the truth of Colbert's statement – the Chancellor promised that there would 'be no further changes to this regime for the rest of this Parliament or the next'.
The ceasefire was short-lived. In addition to other measures which affect wealthy non-doms (changes to the capital gains tax regime, ATED, the increase in SDLT which make the acquisition of prime London residential properties significantly less attractive, etc) the original charge has been increased threefold for long-term residents and extended.
The most recently-issued consultation ('Ensuring a fair contribution from non-UK domiciled individuals: consultation on a minimum claim period for the remittance basis charge') seeks views on whether non-doms should continue to be able to elect in and out of the remittance basis.
Taxation is an annual process and, consistent with that, non-doms are (currently) free to elect annually on whether to use the remittance basis or not, and may do so to their own advantage (having regard, for example, to the level of their overall income and gains for that year).
However, when the General Anti-Abuse Rule (GAAR) was introduced in 2013, HMRC took a new approach: while recognising that, under the UK's tax code, there are different courses of action that a taxpayer can quite properly choose (including reliefs, or different means of achieving the same end), it rejected the notion that taxpayers have unlimited freedom to use their ingenuity to reduce their tax bill by any lawful means.
This attitude now seems to extend to non-doms: the consultation appears to be seeking to limit the freedom of choice of non-doms (unlike any other taxpayer group) to be taxed year on year.
HMRC will doubtless be hoping for an increased tax take, and doom-mongers will predict a mass exodus of furiously hissing geese.
We take a more pragmatic line – the super-rich could continue to use the remittance basis every year and regard ’90,000 as equivalent to the Swiss forfait, or may quietly retreat from the UK; it's the middle-wealthy who are likely to stop using the (expensive, now) remittance basis.
Do we still want non-doms, and if so, at what price? The consultation closes on 16 April.
Sophie Mazzier is counsel at boutique private wealth law firm Maurice Turnor Gardner LLP