Response to Reform’s Britannia card proposal

Stuart Adam, Senior Economist at the IFS, said:  

‘The taxation of people who move to the UK is difficult in principle and practice. Recent reforms have led to concerns that large numbers of wealthy people will leave the UK or not come here in the first place, though it is not yet clear how far those concerns are justified. The proposals of Reform UK are a response to those concerns, but have problems of their own.  

‘The proposals seem to imply reintroducing the concept of domicile. That would be a mistake. Domicile is a problematic concept that is based on nebulous, subjective and difficult-to-prove criteria such as where one intends to reside permanently. Basing taxation on residence – an objective and observable criterion – is preferable.

‘The proposed regime would also move the UK back to a system of taxing based on remittance, i.e. whether foreign income and capital gains are brought into the UK. As a result, it would be relatively attractive to non-doms with high offshore wealth, but not necessarily to those who want to invest that wealth in the UK (because remitting money to the UK brings it within UK taxes).

‘Reform claims that “the Britannia Card all but guarantees a net positive outcome for the Treasury”, but that is far from clear. The £250,000 fees for the card would be redistributed to low-paid workers and therefore be neutral for the exchequer, so the question is what other revenue impacts the policy would have. For that, much depends on how many of those paying the £250,000 fee would have been in the UK anyway and how many come to (or stay in) the UK in response to Reform’s policy. Those attracted to the UK by the policy would typically end up paying a large amount of tax on their UK income (on top of the fee for the Britannia card), benefiting the exchequer. But for those who would have been in the UK (and paid tax on their UK income) anyway, the exchequer would lose the tax they would otherwise have paid on their foreign income and gains – which must be at least enough for them to prefer to pay £250,000 to avoid it, and would often be far more than that. The relative sizes of those two effects would be key. The overall revenue effect would also depend on whether those who do not buy a Britannia card would still see their foreign income and gains being exempt from UK tax for their first four years of residence in the UK, as under the regime announced last year – and, if not, how the extra tax payable in those first four years by those who would come to the UK anyway compares to the loss of revenue from those who leave (or don’t come to) the UK as a result of that tax rise.  

‘Providing lump-sum payments to low-paid full-time workers would face serious administrative challenges. For a start, HMRC currently has no way to identify whether a self-employed individual is working full-time – would the self-employed be included regardless of how much they worked, or excluded altogether? Neither choice seems satisfactory. The policy would benefit the lowest-paid full-time workers, though this does not correspond to the lowest-income households, both because the lowest-income households do not generally have someone in full-time work and because many of the beneficiaries would have working partners and thus a higher household income than their own earnings might suggest. The policy would provide an incentive for people to move into (or stay in) full-time work, but also discourage low earners from increasing their earnings and risking losing eligibility for this payment.’