Pre-budget report: what might have been

Another pre-Budget report and yet another Thursday morning of tax
practitioners groaning into their morning papers.

Gordon Brown’s focus on family friendly policies and ‘green’ issues appears
to be a thinly veiled attempt to garner support ahead of his move ‘next door’.
With some questioning the actual effectiveness of these policies, it is not
without some measure of frustration that we consider what could have been.

Where to begin? No significant tax cuts, no modernisation of HMRC powers and
lip service to green issues. Alternatively secured pensions would have been an
excellent boost to pension savings – had they been allowed, and then there is
the continued lack of clarity.

Ask any tax practitioner what he wants and while he might argue that some
simplification would cure a few headaches, he will in all likelihood say
‘certainty’. Ask his clients and they will scream it, after all, who wants a tax
bill hanging over them for two years waiting for the self-assessment enquiry
window to close? No, wait, didn’t I read somewhere that it was six years, or was
that a neglect case? Hold on, what did they decide ‘neglect’ was? All that and
the tax issue still needs to be addressed.

Look at the sorry state of residence and domicile. Most jurisdictions count
the days you are there; go over six months and you are resident, under six
months and you’re not resident.

But before even looking at the rules the unfortunate visitor to the UK
doesn’t even know whether he’s actually here.

For a long time, HMRC and taxpayers alike have bowed to the mighty tome that
is IR20, and from which HMRC happily quotes as if it is the highest power in the
land. IR20 states that in counting the days spent in the UK, you omit days of
arrival and departure. But HMRC has, in a flash of inspiration, decided that
this is not a rule fit for the modern world.

And what about domicile? That’s easy, live here 17 years and you’re UK
domiciled. Not quite. You can be UK domiciled after a presence of only 15 years
and two days. And even if you do manage to negotiate this arithmetical trap,
don’t get too excited, that’s only for inheritance tax! For income tax and
capital gains tax, you have a whole other set of tests to worry about.

So, with silence in the pre-Budget report, we are again left with
uncertainty. Even worse, the uncertainty is, in some cases, where the client
isn’t around to defend himself. This in itself is surely justification for a
clearer, simpler approach?

Andrew Penman is an associate tax director at Smith
& Williamson

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