Finance Bill

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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?
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.
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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”.
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.
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