Non-Sense: Examining the arguments and rhetoric around non-dom tax provisions

  • Being a UK resident with non-domiciled status simply means that one does not intend to remain indefinitely. The tax system requires residents to be taxed on their foreign income. Non-doms resident in the UK elect to be taxed on either the arising basis (their worldwide income is taxed automatically) or the remittance basis (they are only taxed on worldwide income if they bring it to the UK). 2008 reforms mean that after 7 years of UK residence, non-doms who choose to be taxed in the latter way must pay a yearly fee of £30,000 (rising to £50,000 after more years of residence).
  • Ed Miliband has claimed that there are 116,000 non-doms but this ignores those of the UK’s 400,000 international students and 6 million foreign-born workers who did not have to file a self-assessment form and those who did file it but did not tick the non-dom box. It is estimated that something like 1 million are not permanent residents, so are by definition non-doms.
  • The rules introduced by Labour (and supported by the Tories) in 2008 ended up only hurting less wealthy non-doms and did nothing to really wealthy ones: electing to be taxed on a remittance basis benefits only those with very high foreign incomes.
  • The UK is far from the only country with an arrangement for taxing foreign incomes. In fact, of the 221 jurisdictions which have some form of personal income tax, a mere 35 tax only local income.
  • There is a substantial literature showing that tax systems are very important in deciding where top talent goes. It tells us that punitive changes to the UK tax system could discourage the most valuable potential immigrants from footballers to inventors.
  • Changing how we determine someone’s domicile is likely to have unintended consequences. First, making it easier to acquire a new domicile might reduce inheritance tax receipts, as UK domiciled residents of foreign countries currently pay UK death duties on their worldwide estates. Second, changes to the concept of domicile would have repercussions in other areas of law, such as matrimonial matters and determining the validity of wills.
  • The ethical justifications for Ed Miliband’s view that it is immoral that non-doms do not pay tax on their foreign income are deeply contentious. There is no principled moral case for taxing more than local income.

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The Ties that Bind

  • Social cohesion is the strength of interactions between members of society. These interactions are characterised by a number of norms that include trust, a sense of belonging, and a willingness to participate.
  • Measures of social cohesion include generalised trust, interpersonal trust, civic participation and volunteering.
  • Evidence from the US suggests a strong relationship between rising diversity and lower levels of generalised trust. There is much less evidence for a relationship between diversity and other measures of social cohesion in the US.
  • There are some cultural reasons to suspect that American evidence might not fully apply to Europe and the UK.
  • European evidence at a national level does not suggest a negative relationship between diversity and trust or other social cohesion indicators.
  • Evidence from the UK is mixed. There is some evidence to suggest an association between higher diversity and lower generalised trust – yet there is also conflicting evidence which finds no such association.
  • There is little evidence to suggest a negative relationship between diversity and other measures of social cohesion such as: civic participation, trust in authority, or voluntary work in the UK.

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Protectionism Takes on a Dangerous New Legal Identity: A New Threat Posed by State Sponsored Patent Trolls

This think piece sees Adam Smith Institute Senior Fellow Keith Boyfield explore a worrying aspect of the alarming growth of patent assertion authorities – often referred to across the pond as patent trolls. He highlights a particular brand of patent ‘trolling’ sponsored by foreign governments, and contemplates its implications for world trade and competitive markets.

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The Real Problem Was Nominal: The Crash of 2008

Prof. Scott Sumner, who inspired the US programme of QE3 and was dubbed ‘the blogger who saved the US economy’ by The Atlantic, explains how central banks—not bankers—caused the 2007-8 crash. He goes on further, showing how the European Central Bank is repeating the mistakes the Fed and the Bank of England made in the dark days. And he argues that they can solve the slump and prevent future crises with a market-based, rule-based, stability-focused monetary policy of targeting the level of  nominal GDP.

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The Green Noose

• Despite academics, politicians, and international organisations recognising that the UK is facing a housing crisis, it is currently far less developed than many imagine, especially when compared to similar countries. Indeed, only two members of the EU 27 have less built environment per capita than the UK: the Netherlands and Cyprus. 90% of land in England remains undeveloped, and just 0.5% would be required to fulfil this decade’s housing needs.

• Green Belts are not the bucolic idylls some imagine them to be; indeed, more than a third of protected Green Belt land is devoted to intensive farming, which generates net environmental costs.

• The concept of ever-expanding urban sprawl is mistaken and pernicious. In addition, Green Belts can give rise to “leap-frog development”, where intermediate patches of land are left undeveloped due to restrictions, a phenomenon indistinguishable from what many understand urban sprawl to be.

• By encouraging urban densification, Green Belts take green space away from those places where it is most valued. Each hectare of city park is estimated to be of £54,000 benefit per year, compared to a mere £889 per hectare for Green Belt land on the fringe of an urban area.

• There are substantial welfare costs of Green Belts. They have made accomodation more expensive and smaller, increased costs for businesses (especially relative to other European cities), and have contributed to the volatility of house prices.

• The avenue of reform we favour is the complete abolition of the Green Belt, a step which could solve the housing crisis without the loss of any amenity or historical value – if only politicians and planners had the courage to take it.

• Failing this, we conclude that removing Green Belt designation from intensive agricultural land would also enable the building of all the housing required for the foreseeable future, and could help ameliorate the catastrophic undersupply of recent decades.

• In the short term, simply removing restrictions on land 10 minutes’ walk of a railway station would allow the development of 1 million more homes within the Green Belt surrounding London alone. (more…)