Taxman cometh...

A Darling

So sad, but I think we will be leaving the UK in the next year or so, all because of Alistair Darling’s new “non-dom” tax changes. Even though the details have not been published and the IRS in the US hasn’t commented, it clearly is going to cost me and my family more money to be in the UK — and we believe unfairly.

Here is why…

Currently non-doms only pay tax on UK income. This is changing. The UK is going to move to world-wide taxation for non-doms living in the UK for seven out of the last ten years. However, there is a £30,000 a year levy that you can pay to remain taxed largely as we are now, on a remittance basis. Since this applies to all non-doms over 18, it means that my family would have to pay £60,000 to avoid paying worldwide taxes.

Since this is very near our combined pre-tax income its unlikely we will do this unless our tax bill from non-UK taxes ever approached £60k (say received income of £150,000).

This means we will be paying UK taxes on an ‘arising’ basis on all worldwide income. Now no one knows exactly what this means, but it will surely result in a tax penalty for us. Even if there is a tax treaty worked out amazingly in our favor with the US, we will still be subject to more tax. For example, mutual funds are taxed at 15% in the US, but at 40% in the UK. Additionally there has been no discussion about:

  • different ‘tax-free’ investments in the US and whether the UK will respect them.
  • whether the payment of taxes in this ‘arising’ status will be allowed tax free from non-UK funds (imaging being taxed 40% on money brought to pay taxes!)
  • difference in inheritance tax laws

Just to complicate matters more, the US tax year is January 1 and the UK’s is April 5, meaning that for two-thirds of the year you will have pre-paid your US taxes and then have to reconcile that with the UK later, and one-third will be paid in the UK first and have to be reconciled with the US! We might have to pay an accountant twice about £1,000 just to figure this out… that’s nearly 2% of our income!

The very spirit of this feels very wrong. We already pay tax on the US our hard earned investments there. All we have are our retirement savings, money put away for our children’s education and a bit of savings. Since we have been in the UK we have paid taxes like any UK citizen, but not even been allowed all the benefits, like the child benefit for four years!

Why the Chancellor couldn’t just shut down the loop-holes (or ‘anomalies’ as he calls them) for bringing money into the UK and be done with it, I will never know. Instead he has made things so complicated and unsure that many of us ex-pats are thinking of leaving. We have attended a number of sessions with non-doms and tax advisors over all this and the level of anger and confusion is staggering. Anecdotally we have heard that around 4% of non-doms are going to be leaving this year, many ahead of April 5th. Even worse, companies that bring ex-pats over are thinking of stopping any long-term moves!

I can only imagine that this will severely hurt the UK economy overall. Ex-pats spend a lot of money in the UK. Most are not avoiding tax. All bring a wealth of information and experience that helps UK corporations make money (and pay taxes). The complication alone will scare many off, the spirit of the law will offend all. Sad.