Why?
Residence is a pillar of any tax system. Since Pitt’s introduction of income tax in 1799, the UK has had a tax code where liability depended (at least to some extent) on the residence status of the individual. Pitt managed to design a system where residence wasn’t defined. Now, 214 years later, George Osborne has remedied Pitt’s omission.
The UK inheritance tax code has domicile (rather than residence) as a pillar. This has had interesting consequences as international social mobility has increased. It is fair to say the that the UK system has always had difficulties with cross border relationships.
The treatment of transfers from a UK domiciled individual to a non-UK domiciled spouse was widely seen as discriminatory – though surprisingly it was never formally challenged in the European Court of Justice or the European Court of Human Rights. Osborne has come up with a solution – perhaps not the ideal solution but one which is at least workable.
Britain’s Crown Dependencies have, in the past, been repositories for "hot money" though today they have robust anti money laundering regimes. Under Osborne’s Chancellorship the UK has agreed a comprehensive package of measures with the Isle of Man, Guernsey and Jersey governments to clamp down on those who choose to hide their money offshore.
The agreement provides for automatic exchange of a wide range of financial information on UK taxpayers with accounts in the Isle of Man, Guernsey and Jersey.
This will significantly enhance HMRC’s ability to crack down on those who do not declare their offshore income or who "hide" capital derived from taxable activities in the UK in one of the Dependencies. There will also be a facility to allow people to come forward and disclose their previous tax offences in advance of information being automatically exchanged.
For these three reasons alone, those involved with international financial planning will come to regard Osborne’s 2013 Budget as a milestone along the road to complete acceptability.
Can he solve the "Starbucks" and "Bolt" problems in 2014?
By Gerry Brown, technical manager, Prudential
