184. Does The UK Need Rich Foreigners?

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1:38Hello and welcome to The Rest Is Money with me, Robert Paxton. And me, Steph McGovern. And also with us, Dan Needle. You remember Dan, we've had him on a couple of times now. He's a tax dodger's worst enemy. A leading tax lawyer and investigative journalist. Spent more than 20 years at Clifford Chance as head of tax and founded his own non-profit think tank, Tax Policy Associates. He's had a bit of a fight with Sia Youssef of Reform this week, but there's loads of things we want to talk to him about, aren't there, Robert? Yeah, look, that fight was about some work that Dan had done, basically saying that Reform's proposal, its so-called Britannia card, to get the wealthy to flock to the UK.

2:22they'd pay a fee and would be exempt from tax here. He said that this would cost the UK a fortune. We then, what was the phrase that Zia used about him, Steph? Yeah, so he called him a far left political activist and a champagne socialist. We therefore decided to get Dan on to explain himself as a far left activist, probably not. So what we're going to do in today's episode is look at why this argument with reform actually matters to all of us, because it's in the context of whether it's good for the UK to attract wealthy people to live here with the carrot, the incentive, that they won't have to pay tax on their worldwide assets.

3:12So here's our interview with Dan Needle. Can you just set the scene for us? Why does it matter whether or not we have more or fewer wealthy foreigners living in the UK? So the problem with any discussion about non-doms is that exactly what a non-dom is, is a difficult, a kind of multivaried thing. So different types of non-dom. Imagine you are a French teacher who comes to teach in the UK. You're a non-dom. You might think someone like that, well they're not going to have loads of offshore assets actually they might and they may well have the french equivalent of an isa and if they move to the uk and suddenly their french tax exempt isa becomes taxable here that's a pain for them another category someone so wealthy is they're a banker hiring banker in france a doctor they come here again they're probably going to have more savings maybe property in france having it taxed in france and here right faff then you get to the seriously wealthy who could come to the UK, be spending maybe three months a year in the UK, maybe more.

4:18They've got vast amounts of assets offshore. They're probably not going to come in the UK if the UK fully taxes them. So you have lots of very different types of people. The way their tax worked for like 150 years, basically since the start of income tax, which was introduced as a temporary measure to fund the Napoleonic Wars. And ever since then, income tax simply hasn't applied to people who aren't yukodomical who live here and have foreign assets. But that all started to change, didn't it, over the last few years? So talk us through those changes. Yes, so no one had really very much focused on this.

4:58It got to the point where there were a lot of people here, some of whom were actually pretty British. Robert Peston, who happened to have been born abroad, but had spent all of his life here, could claim to be a non-dom. Even more spectacularly, me spent all my life here, born here. I could go to Hong Kong for a bit, come back here and say, aha, now I love Hong Kong so much, and they're non-domiciled. And there were quite a lot of people, including a couple of prominent politicians, who used that approach to pay very little tax. Was it easy to just move your domicile status then to another country, or would that not be quite bureaucratic?

5:34Well, domicile was never defined in a law. It was a common law concept. People talk about where do you plan to be buried? Where do you plan to retire? And you'd essentially just say, yeah, my real home now is Botswana or Hong Kong. So if you are a non-DOM, you don't have to leave the country at any point. You can just come here. You're a French teacher, using your example from earlier, who just comes here, lives here for four years maybe and goes back. But in that four years, you don't have to go back to France at any point. Or 30 years, in fact. Or 30 years. Why, in your view, did we move from a position where I would guess successive governments thought it was a good thing to attract, whether they're wealthy or non-wealthy people, to live here and work here into a world where both the Tories and Labour took the view that we had to start as a country taxing these non-DOMs on their overseas assets.

6:38What changed? I think there's universal agreement that people who move here should have a few years where they're not paying tax on their foreign income. So the French doctor doesn't have to worry about the treatment of their French assets until they're settled here. So I think everyone agrees on that. The question as to what we think about the very wealthy who are here a long time is much more difficult. And truth is, no one really knows. So several views. One view is these people don't actually pay much tax in the UK. They arrange their affairs so all their assets are offshore. They're not taxed on that.

7:09Yeah, sure, they pay VAT if they buy stuff here, but you can be sure that their big purchases are going to be outside the UK. So are they really paying much tax? Are they really benefiting the economy? Or are they just inflating asset prices by buying big houses in Mayfair? That's one. Can I ask you a question? Has there ever been robust research on whether these wealthy individuals... rules in in in i'm going to interrupt you halfway through no there's not been robust research on any of this shit about the economic impact of non-doms so so so when you hear a politician say the great thing about non-doms is they invest in british businesses and they create jobs might be true but it might be untrue we just don't know is what you're saying it might be untrue yes so so one view is that the very wealthy non-doms don't actually pay more tax they inflate asset prices they're not an economic benefit the other view is well actually they spend a lot here they support the economy there's a whole ecosystem around there is a benefit um what is the overall pro kind of that nobody knows never seen research on it um that the treasury was historically always confident it was a positive evidence for that i've not spoken to anyone who's seen it don't know so coming back to then where we started you were explaining how the rules have changed you're about to explain how the rules have changed so take take us through that kind of when it was like 2008 wasn't it yeah exactly so once upon a time you could be a non-donner here forever and even if you were bored in the uk you could flip into being a non-don which is ridiculous but that's that's how it was so 2008 there was a 30 000 pound fee if you'd been here for seven years if you wanted to keep the remittance basis this special tax basis and about 5 ,000 people paid.

8:50So they paid£30 ,000 a year not to pay tax on their overseas assets and earnings. In 2012, they introduced a£50 ,000 fee for people who've been here for 12 years. In 2015, a£90 ,000 fee for people who've been here 17 years. And then in 2017, they said, no, we're not doing that anymore. If you've been here 15 years, that's it. You're now deemed UK domiciled, you can't pay to get out of that. So on the face of it, the 2017 rules made it impossible to spend all of your time here and be a non-dom, unless you had a trust, in which case you were fine. So where are we at now? Right. So kind of the problem with tax policy generally, instead of sensible people in a room thinking about the optimal tax policy, you have a political panic, a one sentence of tells them by a minister and then scrabbling to create rules.

9:42So the scrabble in 2024 was the conservatives announced they would scrap the non-dom rules completely and introduce a modern exemption system they called it the foreign income and gains fig regime the idea is if you arrive here you're completely exempt from tax for four years after that you're taxed totally normally an inheritance tax would apply after they weren't certain but they said about 10 years so on the face of it that ended the long-term value of being a non-dom for the very wealthy but still helped high-skill migrants coming here gave them a few years of buffer so on the face of it it really radically changed things but what they said is if you put stuff in trust before april 2025 you're good so your long-term non-dom i know like an hour of shake or something living in Mayfair, they could continue to spend all their life, more or less, in the UK as a non-dom and pay almost no tax because their stuff would be in a trust taking advantage of this safe harbour or loophole or call it what you will.

10:49Then didn't Labour change that again when they came into power? Labour enacted the Tories proposal but they scrapped the trust loophole or not a loophole, it's not really a loophole at all, this is a deliberate safe harbour. Labour said that they would scrap that. So this is now a big deal if you're a very wealthy person who's resident in the UK, because after four years, you now have no prospect of not paying tax. And when it comes to income and capital gains tax, most very wealthy people are kind of relaxed about that. You're paying a few more percent here than you would someone else, but that's not huge.

11:26Inheritance tax, though, is the big one, because our rate of inheritance tax, 40%, is one of the highest in the world. And the idea that you move to the UK, get hit by a bus, and then 40 % of your assets disappear is unappealing to the very wealthy. It might be unappealing to you or me, but they're in a position to complain in a louder way. So the inheritance tax element of this is big. And as a result, the various stats one reads about people leaving are mostly bogus. But I'm convinced there has been a material number of very wealthy people leaving the UK. And we don't know, you don't know, because no one has ever analysed what exactly non-DOMs are contributing to the UK economy.

12:04There is data, because you cite it, on how much the government is making from scrapping non-DOMs. And that is quite a large sum of money, isn't it? It is. The OBR estimated as£34 billion over about five years. There's a large number of uncertainties in that. But one of the reasons it's so high is that right now the very wealthy non-doms pay not much tax. And if they stay, they'll be paying a fair amount of tax. You can really have quite a lot leaving and still make a lot of additional tax. Can we come then to this, what reform are suggesting? So reform are suggesting we go back to the pre-2017 position, aren't they?

12:52So non-DOMs are able to pay a fee and then retain, have this benefit of being a non-DOM forever. However, that fee that they're suggesting, which is this 250 grand payment, gets you this card called a Britannia card, which then they're saying the money from that, they will distribute as cash payments, not facing any tax, to the 10 % of the population who are the lowest earners. So what do you think of it? So I know there's several quite serious problems with it. The first problem is, what do you do about the current proposal? People get a four-year grace period when they arrive, when they're exempt.

13:32If you keep that, then no one's going to buy a Britannia card for four years. And that's, I mean, Reform want people to buy the cards now because they use the revenue they get, and then they'll give it to, I think there's two and a half million people earning around the minimum wage. So people get, they say, 600 quid each cash. But if you have to wait four years before anyone pays for a card, then it's four years before anyone gets their 600 quid. And they don't talk about this. The reform paper is odd because it's quite long, but it goes into remarkably little detail or analysis. It doesn't say what happens to the current regime.

14:05I think they have to abolish the current regime for their idea to work. But if you do that, then you are making the UK much less attractive to your non-billionaire, high-skill, high-pay immigrant who we want. So using the example of a French doctor, you might have a doctor who comes over to the UK to work and they will be hit with this 250 grand fee. Well, they wouldn't pay that fee. So they couldn't afford the fee. So they'll be taxed in the UK on their worldwide income. Oh, and they're also taxed in that year when they move on in France for the worldwide income. It's a right mess. They'll pay a fortune to account.

14:40It's really off-putting. So they won't come is what you're saying. There's all sorts of people who are not extraordinarily wealthy. but their skills are very valuable to the UK and those people could be teachers could be doctors they're just not going to come yeah it's possible they could design their way around it but reform just don't really think about this but it sounds like when you hear this is a cash payment to the lowest paid workers as someone you know is from the northeast where a lot of those lowest paid workers are their point about the redistribution of this money would help regional inequality but what you're saying is either no one will pay it because people will be put off because they haven't got enough money to be able to afford it of the non-doms or they'll be so wealthy 250 grand is now to them and it buys them the ability to not pay any other tax in the future so we need to deal with the different categories the first category of non-dom is this from the non non billionaire important migrant they seem to lose out from the folks proposal second category of on Dom is one that reform forgot about entirely, which is the people who are already here.

15:51Now, reforms say they want to stop people leaving. So that means they must make the Britannia card available to the people who are already here. But some of those people, three quarters of them, if you believe the OBR, weren't planning to leave. But if you're one of those people, you're already in the UK, you're not planning to leave, you think you're going to pay 250 grand or more tax next year, of course you're going to buy a Britannia card. And all their tax disappears or at that 34 billion the obr estimates will will come in revenue all of that goes it's a massive problem i think it's what is usually referred to as a dead weight cost often people got that dead weight cost because before you get any benefit from the policy you have to deal with the with the unfortunate element now you could solve this by saying the card only applies to people who aren't here already only applies new arrivals and the paper actually says that but when they propose this publicly and in the articles they've written they talk about stopping the exodus and making it available to people already here so it's a big problem so we've covered two categories of non-dom the the non-billionaire the billionaire is already here now the third category the one reform care about i think quite a lot these people who aren't here who they want to attract they want to say to them come to the uk pay 250 grand you'll be exempt from tax on your uk assets for for life and they think they will get 6 ,000 a year is their low-end estimate.

17:12So stepping back, 6 ,000 a year, really? Because when we had the 30 grand non-dom fee, only 5 ,000 people paid that ever. Not 5 ,000 new ones a year, but 5 ,000 ever. The idea of 6 ,000 coming in new people per year seems highly optimistic. There's a bigger problem. So if you're saying to people, buy this card, and then you get 10 years tax-free in the UK. People are only going to do that if they believe they'll get 10 years tax-free in the UK. Now, imagine reform wins some extraordinary election next year and come into government. Are you going to believe that they're going to have a stable majority for eight years, 10 years?

17:57I kind of think you won't, particularly if you look back at the sheer number of non-don changes in the last 20 years. The idea that you'll think the system will be stable for 10 is far-fetched. And not one of the private wealth specialists I spoke to thought people would believe this promise. It's just not credible. Of course, no parliament combined a future parliament. There is no law reform could pass which guarantees this card will work. So for those reasons, they're going to have a lot of difficulty attracting people. So, but no one yet seems to have come up with a credible plan for how to deal with non-doms, have there?

18:33No, and partly it's because there's a lot of political disagreement. However, I've done quite a lot of roundtables with very wealthy people and their advisors, people who either have left the UK or are planning to leave the UK. When you ask why they're leaving, tax is absolutely there, but it's not the only thing. They also talk about immigration, difficulty bringing their family and friends over. They talk about crime, fear of violent crime, particularly in London. they talk about as a general perception the uk is in decline and so even if we could fix all the tax just like that it's not enough these other things are i mean not my area but seem a lot more challenging to resolve don't go away lots more gripping stuff with dan needle in just a minute can i now ask you about exit um taxes yes do you think they're a good idea because we are seeing countries like Germany and Norway.

19:28Kind of going quite heavy on them. So there's something quite weird in the UK, which is that Robert can spend 40 years in the UK building an amazingly successful business. He can get an offer to sell it to private equity for five billion quid. It's more likely to be me, by the way, who does this, not Robert. Steph is about to get an offer from private equity to buy her business for five billion quid. And if Steph stays here and gets five billion quid, she'll be taxed on that as a capital gain at 24%, which is a pretty good deal. But she might think she wants a better one. She doesn't want to give about a billion quid to HMRC.

20:01So what Steph does is moves to Monaco. You move to Monaco, and then a couple of months later, you do the deal, you get your five billion quid, you pay zero tax. It used to be that you could go to Monaco for a year, make your money, come back to the UK, which is ridiculous. Now you have to be there five years. but still that is a that that's kind of an amazingly easy way to avoid tax and many countries have exit taxes which kind of work like if you move to monaco that's great but if you then sell the company or realize money from it then the uk will still tax that and that's a good idea isn't it i think it's a good idea i think you need to flip fix the reverse problem too so the reverse problem is French Stephanie has spent 40 years in France building up a multi-billion business.

20:50She comes to the UK and a month after arriving here she sells it. All the value was created in France nevertheless the UK will tax all of that gain. Well that's not fair. What we should do is have a capital gain system that says if you build up a gain when in the UK we tax it and that is fair on both sides the slight challenge is if a government minister made even the slightest noise about exit taxes a whole bunch of people who'd be maybe possibly perhaps thinking about exiting would exit just like that so if i was a huge fan of exit taxes i would have said no i am dead against an exit tax we will never have an exit and then you do it on on on budget day and you say it comes in at midnight yeah actually rachel reeves um i've been quite critical of a number of rachel reeves decisions but she did one thing extremely well which is that some previous chancellors even very smart ones like nigel lawson increased capital gains tax from the next tax year and so surprise surprise you get a mad rush people selling to lock in the lower rate rachel reeves did it overnight that's like stamp duty whenever they change stamp duty it's always leads to so stupid Yeah, it leads to a massive...

22:04It's one of the reasons why transaction taxes are problematic. Look, I mean, I've long been in two minds about the benefit to the UK of having lots and lots of wealthy people come here. And, you know, those of us who lived in London from about 2000 up to about, you know, Brexit or so, London became a much more unequal kind of place, right? I mean, you know, the soaring property values because essentially overseas wealth was piling in and, you know, the lights being off because these people would buy these properties and hardly ever be here. The creation of all sorts of shops and, you know, retail experiences and inverted commas that normal people simply couldn't afford.

22:50I wasn't persuaded this was great for either London or the UK, particularly when there was minimal evidence these people were actually investing in the UK and creating jobs. On the other hand, we do need people with tremendous skills to come here and expertise. And if people are going to come here and invest in the productive capacity in the UK, that's got to be a good thing. So I think the actual debate around whether... May you mind up, Robert? Which is it? You have to pick one. No, no. In the end, I can't pick one because I think it is complicated. I think it is complicated. But if you were designing a tax system that, in a sense, encouraged people who would make a contribution to come here, how would it differ from what reformers come up with?

23:40What would be a sensible way of encouraging people with both money and expertise to come here? Well, I'm biased because in 2024, I wrote a piece saying how I think the Conservatives could reform the non-regime. And that's kind of what they did. So I think what Jeremy Hunt did is pretty sensible. I would just be gentle on inheritance tax. So just to be clear, this idea of giving... Is four years genuinely long enough to get the kind of people you want? What's the range that works to get talented people here? Four to what? One view is that it should be 10 years because it should be so far away that people don't think about it when they arrive.

24:18The other is that it should be long enough for people to kind of get established. So it's realistic for them to tidy up their worldwide financial affairs. But basically, to be clear, the Jeremy Hunt approach, you broadly think, was the right way to go. Yeah, I think it's the right way to go. I think it's problematic to have a tax system which works differently for different people based on where they're born. It's a fairness thing. Not only fairness of the very rich versus the not very rich, but fairness of the very rich who were born here versus the fairness of the very rich who were born somewhere else.

24:54But as you say, you know, and you've done this a lot as an investigative tax journalist, is people find ways around it. So the question is, will the super wealthy ever pay the right amount of tax? Or are they always going to be able to find somebody clever like you to shelter them? well someone said we should scrap all tax rules and replace it with one sentence saying everyone will pay the right amount of tax as determined by hmrc and unless you do that then no no one's going to pay the right amount of tax some people will pay too much some people pay too little sometimes it will be sheer dumb luck sometimes it will be complexity of the rules sometimes it will be expensive tax advice there is that there is no neat answer here at all the best we can do is with rules which are simple and apply in a fair way to everybody quick thing before you go So obviously one of the things that was said by Reform about you in that spot you had with CEO was that you are a Labour activist.

25:48So are you? I'm a member of the Labour Party. I sit on their senior disciplinary commission, committee rather. I have no role in policymaking or campaigning and I've been pretty critical of the Labour government. I think the week before Reform said I was a communist, someone else said I was God's gift to neoliberal tax policy. So I'm pretty used to people who disagree with what I say, making ridiculous political allegations about me. And you were very supportive of Jeremy Hunt's plans for non-domsism. I think Jeremy Hunt was all in all a pretty good chancellor. I should say I advise politicians in all parties, not currently reform, but the other main parties.

26:32I speak to policymakers. I'm sure it's only a matter of time before Nigel Farage will be on the blower and asking you to join their team. I would be delighted to. I'd be delighted to. Right, let's wrap things up and let you get back to all your hardcore tax expertise stuff, man. Dan, as always, it's a treat to speak to you. Thanks for all your help. Thank you so much, guys. Bye-bye.