Breaks

For a long time, the UK has been something of a tax haven for foreigners working or residing here.  The fact is that non-domicile residents are not taxed on overseas earnings or assets so long as the money remains offshore (there is a bit more to it than that, but that is the gist of it).  This has long annoyed many people, including the Unions, and Labour promised to do something about when they were elected back in 1997 but it has proved more problematic than expected.  Many non-domiciles (domicility is normally taken from the father and is usually permanent and difficult to change and is different to residence) do not have much stashed away abroad but some have a great deal.

One difficulty is that those with a lot of money overseas find tax optional, anyway.  They are highly mobile and are able to spend freely on advice.  They also tend to spend freely in the UK and the Government is keen not to see that money being spent elsewhere as it is useful to the economy and generates much tax indirectly.  

I suspect that some of the most vocal opponents of this tax break were the very people who have, themselves, benefited whilst working abroad or plan to move to Spain but keep their cash hidden in Gibraltar.  Anyway, 'something' had to be done so the Treasury seems to have come up with a fudge.  To retain non-domicile status will require a payment to the tax man of £30,000.  To a billionaire, this is a mere bagatelle, but to the majority of people working here (and paying National Insurance and Income Tax, from which they may derive few benefits) with a few thousand oversees, this will be punitive.  Of course, those here for a few years may just take a gamble and not disclose their overseas money but a few hapless people will be forced to give up their tax break.

It is hard to see that it will raise much for the Treasury but it may just make the UK a slightly less attractive place to do business and a number of competing countries are rubbing their hands in glee.

It seems that the tax position on buy to let properties is under attack. Private investors buying properties to let enjoy significant tax advantages compared with those buying other assets. The worry is that this is distorting the market and lining the pockets of the rich, i.e. property owners.

The current rules allow for any interest payments and other costs to be deducted from the rental income for tax purposes. In the eyes of many this is an unfair subsidy on those who take out hefty mortgages to buy a property for investment purposes.

Almost no other investments allow this. If you were to borrow to buy a share portfolio, any dividend income would be taxed with no provision allowed for the deduction of interest payments or the running costs of the portfolio.

Seeing something as iniquitous is one thing, doing something about it quite a bit different. For professional property investors, usually investing through a limited company, allowing the deduction of interest payments is comparable with someone running any other company. Also, the treatment of capital gains is different for limited companies.

This story is not new but will the Government act now? It will have to weigh up very carefully any impact on property owners, partly because many are landlords, or aspire to be, and partly because it would not want to start a rout in the housing market. That would hardly win it any votes, even amongst wannanbe first time buyers.