Taxing British expats wherever they live in the world is the only way to stop tax avoidance scandals, financial experts claim.
The Chartered Institute of Securities and Investment (CISI) wants British passport holders to pay income tax and capital gains tax to HM Revenue and Customs (HMRC) regardless of where their home is located.
CEO Simon Culhane argues that basing tax on residence rather than citizenship is a real problem and that the statutory residence test should be scrapped. Current rules say anyone who is tax resident in the UK must pay tax on their worldwide income and capital gains in Britain.
Tax status is decided by the residency test, which considers factors such as time spent in the country during a tax year and family ties.
Scrapping tax residency
CISI is advocating Britain shifts to the US system which makes any American abroad liable for tax on their worldwide income. Besides the USA, the only other country to adopt this system is the tiny African nation of Eritrea.
Culhane explained that the recent Panama Papers leaks showed that the wealthy avoid taxes by slipping through cracks in the system, but basing tax liability on holding a passport would eliminate the problem.
“We could greatly simplify the collection of tax if we moved away from just operating a residence test when determining whether an individual should pay tax”, he said.
“We believe that this system should be changed so that anyone who is a UK passport holder is also liable to pay tax on their worldwide income in exactly the same way as US citizens are taxed on their worldwide income, irrespective of where they live.”
Fairer for everyone
He says changing the system would make paying tax fairer and stop the rich from dodging their liabilities.
“It will avoid the nonsense of midnight flights and sub-optimal planning as individuals, usually highly paid and with a high net worth, take steps to ensure they don’t overstay their time in the UK in a given tax year,” said Culhane.
“The citizenship/residency tests would mean those seeking lower tax havens can still do so, and they can run empires and businesses from anywhere in the world – but if they want the benefits and rights of UK citizenship they must accept their responsibilities to pay their fair dues in the UK. “
CISI is a professional body for securities, investment and wealth financial planners.