Appendix 6: How to Improve Residence and Domicile Taxation

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"To tax and to please, no more than to love and to be wise, is not given to men."[1]

The two most significant improvements to UK tax reform would be procedural:

(1) To have much less;[2] and

(2) To carry out reform in accordance with the Tax Consultation Framework.[3]

The following programme of tax reform is therefore limited and split into two parts. Part 1 is a list of short technical improvements with no significant tax cost, no significant winners or losers, and not politically contentious. It represents some cheap and easy improvements to residence and domicile tax to which no-one should object or find difficult, some "low lying fruit" of tax reform.

Part 2 touches on tax avoidance on which HMRC are very sensitive.

Part 1: Low lying fruit

Proposal Reference
Repeal s.721(3) ITEPA. See The concept of domicile
English/Northern Ireland law definition of domicile should adopt the amendments made in Scotland. (This involves a general law reform, not just tax law.) See Domicile of origin; Child's domicile in Scotland
Repeal s.763(3) ITA which is otiose. See Trustees a distinct person
IT/CGT definition of trustee residence should apply for IHT. See Trust residence for IHT: Commentary
Repeal s.82 and s.65(3) TCGA (collection of exit charge from trustees). See Commentary
TNR rules: exemption if foreign tax paid and annual exemptions. See TNR rules: Commentary
Define RFI to mean all foreign source income repeal s.830(3) ITTOIA. See Let's simplify RFI; Withdrawal of unremittable income relief
"Relevant persons" for remittance purposes should just be the taxpayer, spouse, cohabitee and minor children; investment relief can be abolished as unnecessary. See Corporate relevant persons: commentary Commentary: Let's simplify relevant person rules; Gifts to charity: reform?; Remittance investment relief: commentary
Payment into UK account of non-relevant person should not (for that reason alone) be a remittance. See Gift to non-relevant person; Gift to charity: reform?.
Repeal s.809P(13) ITA See Sets
Foreign services relief: delete condition B and repeal s.809W(5) ITA. See Services relief condition B: commentary; Exceptions: s.730 & s.87 benefits
Temporary importation rule should be restricted to chattels. See Temporary importation rule
A person remitting from a mixed fund can determine what constituent of the fund the remittance consists of. See Mixed fund rules: commentary
Delete requirement that "foreign employers" must be resident outside the UK. See Foreign employer
Align taxation of trades, professions and vocations so the same rules apply to all. See Charge on trading income
Source of interest should be as specified in OECD model. The current test is uncertain. See Source of interest: commentary
Define "ordinary place of abode" in line with residence. See Place of abode: commentary
The DTA self-certificate system for royalties should apply to interest. See Improvement of procedures: commentary
Repeal relief for exempt foreign currency securities. See Exempt foreign currency securities
Align treatment of Baker & Garland trusts, ie extend s.464 ITA to all trusts. See Commentary
Collect tax on income of settlor-interested trust from the settlor.

See Taxation of trustees of settlor-interested trust

Restore motive defence old condition B. See Section 733 computation: commentary
S.731 remittance basis should apply only if benefit is remitted (like the s.87 remittance basis). See Section 731 remittance basis: commentary
The statutory definition of "commercial" in s.738 ITA should be repealed. See "Commercial": commentary
Abolish statutory EU-law ToA defence See EU-law defence: Commentary
Abolish Accrued Income remittance basis (make gains subject to CGT). See Commentary
Define "trade" to include "profession" and align the taxation of trades and professions See "Trade"
Transactions in financial assets should in principle be deemed non-trading. The IME, AIF and OFTR exemptions can be repealed. See Commentary
Repeal s.56(3)(a)-(f) - an odd list of entitlements to IT personal allowances. See Commentary
Repeal relief for pre-1991 protected trusts: there are probably none left in existence. See Commentary: let's abolish relief for pre-1991 protected trusts
Align definition of "spouse" for CGT and IT settlor-interested trust rules, ie apply s.625(4) ITTOIA for CGT. See Civil partner and same-sex spouse of settlor.
Repeal s.87 interest surcharge. See Interest surcharge: commentary
Capital payment when non-resident not matched to gain when resident. See Capital payment to non-resident: Commentary
Schedule 4B & 4C TCGA should only apply where there is a purpose specifically to avoid s.87 or s.86; or (better) repeal and replace with GAAR guidance. See Commentary
Repeal carry-back of losses on death. See Losses accruing before death
Personal CGT losses should be deductible against s.87 gains. See Personal losses & s.87 gains: commentary
The taxation of foreign currency should be the same as foreign currency bank accounts. See Commentary
Yearly exchange rate averaging; Currency conversion date for income remittance is date of receipt, not date of remittance. See Commentary: solution to remaining foreign currency problems
Repeal s.80 IHTA. The cure is worse than the disease. See Section 80 fictions: commentary
UK bank accounts should qualify as excluded property as non-UK accounts. See Non-residents foreign currency bank accounts: commentary
Repeal s.731(6) ITEPA (illegitimacy taken into account). See "Family"
Spouses should be treated as separate persons for CGT private residence reliefs. See Spouses
Abolish the s.105 charge and extend s.106 to cover all the acquisition cost. See Commentary
Shadow directors should be taken out of the benefit in kind charge. See Living accommodation charge: commentary
Abolish ATED-CGT and ATED-SDLT penal rate. Make ATED avoidable by an election that the company should be regarded as transparent for UK IHT, CGT and SDLT. Set ATED rates to match tax advantages of corporate status. See The way forward.
Replace POA rules with focussed anti-avoidance rules. See Assessment
Abolish CGT spouse exemption; replace with CGT exemption on divorce. See Tax planning with the tax-free uplift on death
PRs should be deemed to be a single and continuing body distinct from the persons who are the PRs. See Meaning of "PRs" for income tax
A single definition of "settlor" which applies for all taxes. See Multiple definitions of "settlor": commentary; Commentary: extending IT/CGT appointment rules to IHT
Repeal s.473 ITA (& CGT equivalent); dead letter law. See Settlor of IoV: commentary
Repeal para 21B Sch 24 FA 2007 which has never been used. See Concept(s) of situs
Treat all assets other than UK land and securities as non-UK situate for the purposes of IHT & CGT. See Commentary
Failing that, a second best: All securities situate for CGT in the place of incorporation of the company. s.275(1)(c) should be replaced by a rule that a debt is situate where the debtor is resident (applying the UK tax definition of residence). Repeal s.s.275(1)(k) TCGA (situs of judgement debt). See Situs of corporate securities: commentary; UK law rule: commentary. Commentary
Provision that usufruct is not an IHT-settlement. See Commentary
Update early (pre-1963) treaties to adopt the OECD model definition of PE See PE in early (pre-1963) treaties.
Define PE by reference to OECD model definition. See Commentary: let's have one definition of PE
Replace branch/agency with PE. See Commentary: let's abolish branch/agency

Part 2: Reforms involving tax avoidance provisions

Proposal Reference
Repeal POA rules; replace with IHT charge on death in case of Eversden, Ingram and Home Loan schemes; repeal s.102(5A)-(5C) FA 1986. See Commentary; Restriction on GWR spouse exemption.
Repeal corporate residential property regime; or allow election for transparency See Some ways forward
Reform of offshore anti-avoidance code See Reform of anti-avoidance rules: Introduction


  1. Edmund Burke, Speech on Conciliation with America (1774).
  2. See The promise of stability.
  3. See Tax consultation framework.