Category: Taxation

Calls for a wealth tax have so far been made with little impact, amid fears that a levy on assets would not go down well with conservative – or even not-so-conservative voters, and could hurt people with valuable homes but little cash. However, the Wealth Tax Commission said the timing was ripe for radical change due to the devastating impact of Covid on the public finances and on inequality in Britain.

The Wealth Tax Commission was established in Spring 2020 to ‘provide in-depth analysis of proposals for a UK wealth tax’. It’s not a government body, but a ‘think-tank’ funded by the London School of Economics, Warwick University and the Economic and Research Council (itself a public body). The Commissioners comprise a senior academic from the LSE and Warwick university and a very well-known tax barrister.

Whilst conclusions published last week may therefore not directly reflect government policy, they do propose an academic and practical solution to shore up public finances in these times of crisis – and should be afforded some serious attention. Readers may consult the full 126-page report here. For those with less time, the key points are below.

The report does not argue for the idea of an annual wealth tax. However, it’s strongly in favour of the levying of a wealth tax on a one-off basis to deal with an exceptional need – being that of repairing the alarming hole in public finances caused by coronavirus. The basic premise is therefore based not on redistribution but pragmatism – and the best place to get the money is from people who have it.

Interestingly, that pragmatism contrasts with the reasons that people who support the idea of wealth tax give for doing so: ‘filling a hole in public finances’ comes in only at fourth place, after ‘the gap between rich and poor is too large’; ‘the rich have got richer in recent years’; and ‘better to tax wealth rather than income from work’.

The report leans on a simplified design and implementation to maximise the efficacy of the tax – with the scope to avoid the net limited to such matters as redistribution, relocation or releveraging – all within a potentially short period of time.

How do the Commissioners propose a Wealth Tax should work?

1. It should be levied at the same rate on all assets including the family home, businesses and pension funds. Special reliefs or exemptions would reduce the efficacy of the program by decreasing the yield, complicating the administration and affording opportunities for avoidance.
2. It should be levied by reference to wealth as at a single ‘assessment date’ with only very limited scope for reassessment or revision of the tax should there subsequently be a dramatic fall in value.
3. There would be the option to pay the tax over five years, with further deferral possible in defined circumstances of illiquidity. Payment of tax in respect of pension fund wealth would automatically be deferred until retirement.
4. There should be little or no advance warning of the implementation of the tax, so as to minimise the effect of ‘forestalling’ or advance planning.
5. The tax should, broadly, be levied on people who are tax-resident in the UK on the ‘assessment date’ and by references to assets whether in the UK or overseas. But special rules would apply to both recent arrivals in the UK and to people who had left the UK shortly before the ‘assessment date’.
6. Non-residents would be liable only in respect of UK real property.
7. Trust assets would be included if the settlor or a beneficiary was UK-resident at the ‘assessment date’.
8. The assets of minor children would be aggregated with those of parents. Spouses and civil partners could elect to be taxed as a unit.
9. At thresholds of £500,000, £1m and £2m per person, a wealth tax would respectively cover 17%, 6%, and 1% of the adult population. An illustrative rate of 1% at a threshold of £1 million per household (assuming two individuals with £500,000 each) would raise £260 billion over five years after administrative costs.

Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.

It can be daunting going to work in a foreign country, or coming to work in the UK. Understanding how tax and social security are affected by making such a move can add to the list of complexities you have to deal with.

CONFIRMING UK TAX RESIDENCE

As a new UK resident, foreign tax authorities are often forthcoming with their requests for proof of UK tax residence. The tax authority in Greece for example may require a former resident of Greece to prove that he or she is now regarded by HMRC as a resident of the UK. Customers may also want HMRC to confirm that they are regarded as UK resident so that they can claim relief from foreign taxes which they might be entitled to under the domestic law of the foreign state rather than under the terms of the UK’s DTA with that other state.

Our personal tax desk at Mouktaris & Co is thoroughly versed in the process of obtaining proof of UK tax residence. As a first step, it’s important to distinguish what exactly is required.

LETTER OF CONFIRMATION OF RESIDENCE VS CERTIFICATE OF RESIDENCE (COR)

A Letter of Confirmation of Residence is confirmation that the taxpayer is regarded by HMRC as a resident of the UK for purposes other than claiming relief from foreign taxes under the terms of a Double Taxation Agreement (DTA).

The worked required to obtain a Certificate of Residence (CoR) on the other hand is more involved and will require the taxpayer to outline the following:

• why a CoR is needed
• the double taxation agreement under which a claim is sought
• the type of income under which a claim is sought and the relevant income article
• the period for which the CoR is needed

TAX RESIDENCE WHEN COMING TO THE UK, OR LEAVING THE UK

Having moved to the UK, an overseas assignment may turn out to be a permanent move; similarly a stint abroad may be intended for a finite length of time. In any case the length and timing of one’s time spent outside the UK, any return visits made to the UK and what personal ties are maintained with the UK are important. These factors will determine tax residence when coming to the UK in the year of arrival, or leaving the UK in the year of departure. The taxation of residents and non-residents is very different.

• The starting point is the Statutory Residence Test (SRT), in which you are either UK resident or non-resident for the whole tax year. Provided that you continue to meet the Statutory Residence Test conditions in any given tax year (6 April – 5 April), you are considered UK or non-UK resident.
• If however during a tax year you start to live or work abroad, or come to the UK, then ‘split year treatment’ may apply. There are 8 cases where the criteria for ‘split year treatment’ can be met:
  1. Starting full time work overseas
  2. The partner of someone starting full time work overseas. Under UK law, spouses and civil partners are generally treated entirely separately for tax purposes. This means that the tax residence position of your spouse or civil partner needs to be considered based on his or her own facts and circumstances. However, in some cases it can be influenced by your own tax residence position.
  3. Ceasing to have a home in the UK
  4. Starting to have a home in the UK only
  5. Starting full time work in the UK
  6. Ceasing full time work overseas
  7. The partner of someone ceasing full time work overseas
  8. Starting to have a home in the UK
• Where the conditions are met this splits the tax year into 2 parts:
  • A UK part for which you are UK resident, in which you are charged to tax as a UK resident
  • An overseas part for which you are non-resident, in which, for most purposes, you are charged to tax as a non-UK resident. ‘Split year treatment’ however does not affect whether you are regarded as UK resident for the purposes of a double taxation agreement.

ADVISING ON TAX RESIDENCE IN THE YEAR OF ARRIVAL OR LEAVING

Based on the above and in order to advise properly, it’s important to:

1. understand one’s motivations for leaving or coming to the UK, under one of the 8 cases above;
2. clarify one’s intended leaving or arrival date and the conditions and constraints for spending time in and out of the UK during the tax year;
3. appreciate and quantify the repercussions of not achieving ‘split year treatment’ in a particular tax year both in terms of UK and non-UK taxation, and subsequently identify what would be required to achieve non-UK-residence status in the subsequent tax year

Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.