A few weeks ago, I was asked what I would do to change taxation to make it fairer and increase revenue. I have my favourite bug bears which over the next three weeks I will share with you. I will then submit them to Parliament.
My first bug bear is the concept of domicile which is outdated and hard to track.
Millions of pounds are therefore lost to HMRC which could easily be remedied by making a few tweaks.
‘Domicile’ is nothing to do with ‘residence’ which was overhauled in the Finance Act 2013.
It is now much harder for anyone living in the UK to escape the UK income tax and capital gains tax by moving abroad while keeping a home and children in the UK.
However, if you were to sever all connections with the UK, to become non-UK resident you would then get out of income tax and capital gains tax, you could still be liable for inheritance tax but HMRC may never know!
The population in Britain is around 66 million, the diaspora of British around the world is 140 million. Many of these 140 million will retain a domicile in the UK, and liable to inheritance tax but their estates my slip the UK tax net.
Boris is a British billionaire. He has made a fortune in his petro-chemical business and his shares are now pregnant with capital gain. British politics irritates him and so he has decided to move his business and family to Monacl. However, he wants to continue to hold his British passport in case the politics improves, or he wants to return to the UK for medical treatment. He takes out a Cyprus passport for freedom of movement around Europe.
On leaving the UK, under current rules, he is not obliged to pay capital gains tax on the inherent gain in his petro-chemical business. His plan is to settle in Monaco for a few years sell his shares and pay no capital gains tax.
Furthermore, on his death, if he has no UK assets over which probate is needed his executors will not need to file in the UK and so he may slip the attention of HMRC and avoid 40% Inheritance Tax.
The concept of domicile is crucial to whether a person, like Boris will be subject to inheritance tax on his death. Boris will be treated as UK domiciled if his father was UK domiciled at the time of his birth and he was born legitimate. Boris’s father will be treated as UK domiciled if at the time of his birth his father treated the UK as his ‘home’ country.
If Boris leaves the UK with the intention of making Monaco his home country, then it could be argued that Monaco has become his new domicile – but if he keeps his UK passport, has he genuinely adopted Monaco as his new domicile?
If the Treasury were to switch the concept of domicile with citizenship, it could then monitor its citizens around the world, and also increase taxation substantially.
If Boris wants to keep his UK passport surely it is fair that he should submit an annual self-assessment tax return to HMRC. HMRC could then easily check on Boris at Customs and Excise when he enters or leaves the UK.
If he was UK resident for a few years after leaving for Monaco and then claims to be non-UK resident is it not fair that at that time, he should be treated as if he had disposed of all his assets, including the shares in his petro-chemical business and pay UK capital gains tax accordingly.
If he wants to keep his UK passport, he should then be obliged to continue to submit a self-assessment tax return. He could renounce his UK passport, but at that time he should pay tax as if he had given away all his assets, at 20%. If he then dies within seven years, the estate will be obliged to pay more.
If on his death if he has not renounced his British citizenship, then his estate should pay tax at the full 40%.
There are currently 28 out of our 93 British Billionaires, one in three, living in tax havens. Not one of them has paid capital gains tax to drop out of the UK tax and none of them who are non-resident but still British is submitting a tax return. Furthermore, none of them is being monitored as to whether they are still alive or dead, and if any of them relinquishes their British passport, they suffer no penalty. Is this fair?
If you would like to find out more please contact me on caroline@garnhamfos.com or call on 020 3740 7422