A UK government review paper threatens a radical overhaul of the tax treatment of individuals who are resident in the UK but not domiciled here.
The proposals affect not only high net worth long-term residents, but also foreign workers who come to the UK for fixed periods of time. Currently, such people are not subject to tax on their worldwide income but only on income or gains earned or received in the UK, plus any income remitted to the UK from abroad.
The paper suggests that such people should be subject to tax on their worldwide income in order to make 'a fair contribution to the social structures of the state'.
Jonathan Ivinson, head of tax at law firm Hogan & Hartson, says the government has given little thought to the wider economic consequences. 'Notwithstanding the obvious tax advantages of the remittance basis, high net worth individuals pay significant amounts of tax per capita, and are generally highly mobile,' he said.
Ivinson argues these measures may deter inward investment into the UK - which is more significant. The remittance basis regime is highly attractive to secondees from US banks and finance houses who are subject to worldwide taxation in the US. Countries such as the Netherlands already offer significant tax breaks to foreign employees of international companies. Given that the UK does not offer the most attractive corporate tax regime for such companies, a more punitive regime for foreign executives may lead to international companies considering alternatives to London when deciding where to locate their European headquarters.