Mr.
Hoban: We should all be grateful that the Government have
had that dialogue with the IRS, and the amendments reflect that. Was
there much dialogue
between the Treasury and the IRS before the publication of the Finance
Bill? These matters could have been raised and discussed at that point,
rather than the Government having to come back to table
amendments.
Jane
Kennedy: There is always informal dialogue between the tax
authorities at various levels, particularly when treaties are in
operation, as is the case with the United States. There is regular
contact to ensure that the treaty is working properly, and to keep the
situation under review.
I cannot say
what detailed discussions took place between the Treasury and the IRS
in the United States before we published the discussion document, but
we certainly had discussions to bring us to the point at which we
believed our proposals would work for American citizens. It became
clear that further work needed to be done to make sure that our
understanding was as accurate as possible and did not impact in a
negative way on American citizens living and working in the
UK.
The hon.
Member for Fareham asked a number of questions. Regarding the top-up
provision, I have said before that that is a matter of personal choice.
The provision applies only if an individual chooses not to nominate
sufficient income or gains to give rise to a £30,000 tax charge.
If they are concerned about the top-up provision applying to them they
can nominate gains in their return.
Mr.
Hoban: What would be the consequence if they did not
nominate sufficient
gains?
Jane
Kennedy: If they have already remitted all their taxed
income and gains they will not be taxed if they remit the nominated
income or gains. If they still have unremitted untaxed income and
gains, the rules treat them as having remitted the untaxed income and
gains before the nominated income and gains.
That may not
be the clearest explanation the hon. Gentleman has ever heard, but this
is a complex area and I want to be sure that I give the clearest answer
possible, rather than cause confusion for those who are listening with
interest to our deliberations.
Changing the top-up
charge with a deemed nomination as we propose is a direct response to
the informal discussions that took place. Nominating income is
important to secure creditability and it is important that that is a
tax on an actual amount of money, which is why the legislation was
drafted to make a nomination of £1, rather than no nomination,
and provide a base under which the £30,000 remittance basis
charge could be credited.
As I said,
the amendments replace the current top-up charge with a deemed
nomination. I recognise that the changes are complicated, but the
Committee will agree that it is important to ensure that the
£30,000 amount is creditable. The main Opposition party and the
Government agreed that it was reasonable to introduce such a charge,
and if the party of the hon. Member for Fareham had dealt with the
details, it, too, would have had to consider those issues. Stakeholders
made it clear to us that this was a key issue and we have responded.
Government amendments Nos. 349 and 348 make the necessary changes to
clarify the fact that the normal time limits and procedures apply both
to claims with a remittance
basis and to claims of capital gains tax losses by remittance basis
users. Finally, the remaining Government amendments make a number of
consequential and minor changes in response to the comments that we
received. They ensure that the legislation works as intended, and makes
things clearer for taxpayers and their advisers. It is likely that we
will table further amendments on Report, so we will have an opportunity
to look in greater detail at some of these issues. The deeming
provision always applies to make the charge £30,000, even if
someone does not nominate enough income or gains. If an individual
really does not have enough, they should opt out of the remittance
basis altogether. As I have repeatedly said, that is a choice that
individuals have to make, depending on the details of their personal
circumstances. Amendment No.
52 seeks to delay the implementation of the £30,000 charge.
Delaying the implementation would simply prolong the uncertainty in the
intervening period, and there would be a cost to the Exchequer of
doings so in the region of £300 million. The hon. Member for
Taunton did not say anything about how he would find that cost. In
introducing this package of changes, I believe we have found the right
balance based on the evidence available to us. I urge hon. Members to
support the 12 Government amendments, and I hope that the hon. Member
for Taunton will withdraw amendment No. 52.
The
Chairman: May I tell the Minister that the hon. Member for
Taunton does not have to withdraw amendment No. 52; it is merely
included for discussion with this group of amendments.
Amendment agreed
to.
Mr.
Browne: I beg to move amendment No. 49, in
schedule 7, page 151, line 30, leave
out ‘£2,000’ and insert
‘£5,435’.
The
Chairman: With this it will be convenient to discuss the
following amendments:
No. 50, in
schedule 7, page 151, line 36, leave
out ‘£2,000’ and insert
‘£5,435’. No.
51, in
schedule 7, page 152, line 2, at
end insert— ‘(4) The
Chancellor of the Exchequer shall review, on an annual basis, the
amount specified under subsection
(1)(c). (5) Any review
conducted under subsection (4) is subject to approval by resolution of
the House of
Commons.’. No.
361, in
schedule 7, page 152, line 8, at
end insert ‘or such
income and gains do not exceed the amount referred to in section
809C(1)(c),’. No.
402, in
schedule 7, page 205, line 25, at
end
insert— ‘Cost
of administering domicile regime 144
(1) The Treasury must lay before the House of Commons annually a report
setting out the cost of administering the domicile
regime. (2) Each report made
under subsection (4) must identify the level of unremitted foreign
income and gains at which the revenue raised exceeds both the cost of
collection by HMRC and the cost of compliance by the
taxpayers.’.
Mr.
Browne: The Committee will doubtless be relieved to know
that amendments Nos. 49, 50 and 51 are the last amendments to this
year’s Finance Bill tabled by
the Liberal Democrats, although we have tabled a couple of important new
clauses, which we will consider later in our
proceedings. The
purpose of our amendments is to set the de minimis level higher than it
is set in the proposed legislation. While it has been increased, the
proposal in the Bill is to increase it from £1,000 to
£2,000. PricewaterhouseCoopers says that
“it remains too
low to exclude many non-doms who, realistically, are not the target of
these
provisions.” Amendments
Nos. 49 and 50 have the combined effect of altering the £2,000
level so that it reads “£5,435”. That is on the
recommendation of the Institute of Chartered Accountants, which
suggested a more appropriate de minimis level would be in line with the
personal allowance for income tax. That is how we arrived at that
rather unrounded figure, which would further ease the compliance burden
as well as setting the level at a rate that would be less likely to
penalise unfairly workers who have made a contribution to the United
Kingdom economy.
In an ideal
world, the de minimis level should not be fixed but should be amended,
subject to changes in need. That is the intention of amendment No. 51,
which would require the Chancellor to undertake an annual review of the
level that has been set. I would be interested to know if the Minister
would consider such a review, and also if she will engage with the
argument to increase the level from the rather limited figure of
£2,000 to a figure of £5,435.
I conclude my
contribution on this schedule with a quote from PricewaterhouseCoopers
on this matter, which goes to the nub of the problem. It said that the
amount of the de minimis
level “is
unlikely to cover everyday situations such as the rent on the let-out
flat back home, or earnings from helping with the family farm in the
summer, or a student’s summer vacation job at home. It is the
lower paid who will be hit hardest by this and HMRC is not in a
position to deal with the practicalities of educating and coping with
this
community.” The
nub of the problem is that the measure is regarded by observers of
politics as one that was introduced to recoup money from extremely rich
people who choose to earn large amounts of money in this country. The
stereotypical picture that is painted is of an extremely rich banker in
the City who is not making a large contribution to our tax base.
However, many more people are affected by the measure. The intention of
the amendments is to try to ensure that those people are not unfairly
snared in the system and
penalised. Stewart
Hosie (Dundee, East) (SNP): Can the hon. Gentleman confirm
that the measure applies to people who have chosen not to use the
remittance basis, rather than to those who have chosen to use it, and
that the numbers involved are not just the 120,000 or 130,000 wealthy
non-doms who are normally spoken about but perhaps up to 5 million
other people who fall into that category, one way or
another?
Mr.
Browne: Yes is the short answer to that question. We could
have a debate about the figure of 5 million that the hon. Gentleman
mentioned, because I understand that that is an estimate or a
prediction of the maximum number of people involved. However, his
comment was helpful, because he expanded on the point that I was
seeking to make, which is that these measures are often regarded by the
wider commentating classes and the population as a whole as being
mainly concerned with the tax affairs of people who are relatively
wealthy, but there are large numbers of people working in the United
Kingdom and remitting money who are not very wealthy. Indeed, they are
on the lower end of the income scale, and they contribute to our
economy by doing work that people in this country do not have the
skills or, more likely still, the inclination to do
themselves.
We
are therefore talking about a category of people to whom we would not
wish to do anything other than encourage regarding the contribution
that they make to our economy. The proposal in amendments Nos. 49 and
50 seeks to ease the burden on those people in a way that is more
equitable than the arrangements envisaged by the Government in the
Bill.
Mr.
Hoban: I want to talk principally to amendments Nos. 402
and 361, which are in my name and those of my hon. Friends. I would
also like to use this debate as an opportunity to discuss further the
issue that the hon. Member for Taunton has mentioned, which is the
treatment of large numbers of people who are going to be subject to
these rules. He is right to say that much of the debate has focused on
relatively wealthy individuals, but a large number of people have
raised concerns about people on much lower incomes who will fall within
the remit of the
changes. 9.45
am As
I understand it, the de minimis limit that the Government have
introduced is designed to take people at low levels of foreign income
and gains out of the tax system, and to help lift the burden of
compliance on taxpayers and HMRC. The Minister said in the previous
debate that people will have to make a choice, and that they will need
to make a decision and do some calculations as to whether the rules
apply. We are asking taxpayers to make a decision: should they claim
the remittance basis and lose the personal allowances, or should they
be taxed on an arising basis, then seek to offset foreign tax against
UK
tax? Those
calculations will be made not just by high net worth individuals who
have access to expensive accountants and lawyers. They will have to be
made by migrant workers, seasonal workers who come into the UK to pick
fruit and help in the agriculture industry, people from overseas
working in the NHS, skilled migrants entering through Home Office
programmes, international students—we spoke about them
earlier—and even Commonwealth citizens serving in the armed
forces. The Low Incomes Tax Reform Group has highlighted the range of
people who may be caught by the
measure. It
is worth bearing in mind some of the comments that have been made about
the issue. John Whiting, who was cited earlier, said in evidence to the
House of Lords Economic Affairs
Committee: “It
is of great concern that we have here a provision that will affect a
considerable number of the vast majority of non-domiciles who are not
only unaware of the term ‘non-domicile’ in many
cases...but because of the situation back home...because of
the work they do back home, or their summer job back home, or the rent
on their flat, are suddenly losing their personal allowances...It
seems unfair, at best, and, actually, totally
impractical”.
I shall raise some
questions about that later. That view is shared by several people who
gave evidence and made representations to
us. The
Low Incomes Tax Reform Group suggested that HMRC needs to make sure,
before people set foot in this country, that they understand
remittances and how the relevant double tax treaty works. It will be
necessary for them to consult agreements in the years of arrival and
departure—every year for seasonal workers who have a pattern of
being in two countries on a regular basis—to establish, for the
purposes of the double tax treaty, in which country they are resident.
Once they have established that, they will be able to determine which
country has the primary right to
tax. People
also need to think about how tax credit relief claims can be made;
about withholding taxes that may have been levied on earnings and bank
interest; and about how those taxes will be credited under the UK
system. There are quite a few complex issues that migrant workers need
to understand to make the choice that the Minister mentioned earlier.
There are other issues, too. What about income that arises in the tax
year of arrival, before the individual becomes resident? There are some
issues concerning split years. In the past, extra-statutory concession
A11 looked at how income could be treated in a split year, and whether
it was feasible for income earned before someone became resident in the
UK should be disregarded for UK tax. Can the Minister indicate whether
she has given any thought to the situation of someone who becomes
resident in the middle of the year? Is the foreign income that they
earned before they arrived in the UK disregarded? That would certainly
make the regime easier to use, but, as a consequence of the Wilkinson
judgment—we had a debate about it on Tuesday—I am not
sure whether A11 will still apply. Clearly, that is important in trying
to ensure that there is a workable regime for
migrants. One
of the examples deals with capital gains tax and the position for
temporary visitors who keep their home abroad, and how that applies to
migrant workers. There are some significant issues and if there are
issues for migrant workers themselves, there will be issues for the
administration of the system by HMRC. Malcolm Gammie from the Institute
for Fiscal Studies put it this way:
“Precisely
how it will be possible actually to administer that exemption and how
Her Majesty’s Revenue and Customs will actually be able to check
whether people are doing this correctly is, I think, one of the more
significant questions which arises from an administrative perspective
in relation to these arrangements”.
Francesca Lagerberg
from the Institute of Chartered Accountants wondered how
“from a resource
perspective, HMRC are going to police whether that £2,000 de
minimis is being properly operated and that is a big ask ... do they
have the resources to do that, the training to do it and the
understanding of the issues around it? It is a massive undertaking. We
were very concerned about the compliance, the admin work placed upon
HMRC and upon the taxpayer that that particular de minimis will
bring”.
HMRC is very
confident that it will be able to deal with this. David Richardson from
HMRC said:
“In
reality it is quite simple for most people... Although some choose to
present it as
complicated”. Indeed,
the Minister’s response might be that those people who are
raising issues about de minimis are making it far more complicated than
it is, but that slightly complacent answer underplays the full extent
of
the problem. The Minister last week referred to a bank balance of about
£1.6 million. We are talking about people who are earning some
money while they are back home in the country where they are domiciled.
They are migrant workers who will perhaps spend time in the UK working
and will then return home. There are
some issues about the cost of compliance both for HMRC and for the
people who are subject to this regime—individuals who are
non-domiciled in the UK, but are resident here. That is where amendment
No. 402 comes into play. The objective is to understand the point at
which it is worth introducing this regime, and where the de minimis
limit should be set by reference to the cost of compliance to the
taxpayer and HMRC. There is no point trying to collect revenue if the
cost of collection exceeds the revenue that will be collected. That is
a better approach to looking at the impact of the de minimis limit than
setting an arbitrary figure in the Bill. We need to understand exactly
what the Government expect the costs of compliance will be for both the
tax payer and
HMRC. Amendment
No. 361 would amend a change that the Government have made: where there
is a spouse or a child under the age of 18 they are not required to pay
the £30,000 charge. Under amendment No. 361, rather than having
no income, the income that they would earn would be below the de
minimis limit. A spouse may have a bank account that earns some
interest. Rather than catching relatively small amounts, the de minimis
limit would apply in that case.
I should like
to make one further comment about the interaction of these arrangements
with the tax treaties. I touched on this briefly on Tuesday when I
intervened on the Minister to ask which took precedence: double tax
treaty rules or these rules. There are some issues around the number of
years that might be treated as resident. The question arises as to what
years should be counted for the purpose of the test, where a taxpayer
may be resident in the UK under UK law but is also resident in another
country. If, under the double tax treaty, the taxpayer is treated as
not being resident in the UK for a particular year, does that mean that
they are not resident in the UK for the purpose of the
seven-out-of-nine-years
rule? It is usual for
a double tax treaty to contain clauses to determine residency. Often,
there is a tie-breaker clause where the general tax laws would result
in an individual’s being a dual resident. In cases of
difficulty, it is usual for the two countries to decide the question by
mutual agreement. For example, the US-UK tax treaty has that facility
at the moment. It would be helpful if the Minister expanded a little
bit—certainly in respect of migrant workers—on how the
double tax treaties will work, how applicable they are and the extent
to which they override the existing rules. I understand that some
double tax treaties deal with split-year arrival or departure, but in
other situations that may not apply. That refers back to the point
about extra-statutory concession
A11. Mr.
Mark Field (Cities of London and Westminster) (Con): I
shall be brief, as it is not an appropriate time to have a full debate
on all aspects of the proposal for non-domicile tax. I have always been
sympathetic towards elements of such a tax, but there is grave concern
about the lack of certainty in this area.
I accept that,
as the Minister said, these are often quite complicated matters. The
concern is not necessarily whether that lack of certainty is
justified—professionally qualified people probably can work
their way through a mesh of different regulations. However, such a
perception could do grave damage to this country as an open and
welcoming one in a global world. I accept that that is by no means the
single most important consideration. None the less, in the City of
London there is a worry that we could run the risk of losing some
talented people, who will go to Singapore, Dubai or other parts of the
world rather than settling on these
shores. With
reference to the amendments, I have a lot of sympathy with the idea of
having a larger de minimis provision. Otherwise, we run the risk, as my
hon. Friend the Member for Fareham said, of encountering two problems.
First, there is the sheer cost of compliance, which will be every bit
as much a cost to HMRC as it will be to the taxpayers concerned.
Secondly, above all, that makes this a potentially inefficient tax,
which should not go unremarked on by Opposition Members. I am
interested to hear the Minister’s
response. Recalling
elements of an earlier debate, a particular problem that we are facing
is not so much that relatively low-paid people are coming to work in
this country as immigrants and taking the jobs of our indigenous
population, but that the disincentive to work is often so great,
particularly because of social housing and the tenure that comes with
it—and all the housing benefit that goes with that—that
we run a real risk of unintended consequences arising from what is
emerging in a lot of
legislation. I
hope that the Minister will reassure us that she is giving some thought
to these matters. Without a reasonable de minimis provision, we run the
risk of pulling many more people into the provisions covering these
remittances, in a way that the Government probably do not
intend. 10
am
| 
