Tag Archives: Golden Geese

Abandoning the ship sinking under taxes

According to Pulse, the magazine for General Practitioners, in 2013 4,741 UK trained doctors applied to the GMC for Certificates of Good Standing (CGSs), so they can register with an overseas regulatory body or employer. In 2012 the figure was 4726, and 2,485 for the first six months of 2014.

The training costs for these wannabe emigres was in the main covered by the UK taxpayer. Many are escaping to Australia with shorter working hours, higher salaries and where the politics of envy doesn’t pervade the parliament. The USA and the UAE are also popular destinations.

No one seems to have commented on the irony that two of the UK’s political parties are intent on raising taxes on the wealthy (and yes this includes GPs) to pay for the National Health Service, just as NHS doctors are intent on fleeing those taxes.

Gdansk talk

I’m jumping the gun in Gdansk on October 15th by one month. I’ll be giving my very first public talk on my new book with co-author David Lesperance, Flight of the Golden Geese. The book will be published on November 15th.

I’m giving four talks (on 4 different topics) over two and a half days, plus some press interviews. If any of my blog readers are in the area and would like to come along, then just let me know so I can arrange it.

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Narrowing of the tax base

A very interesting point made in the Economist of 20 September, 2014. The number of people paying income tax is dropping, and this is highly dangerous for national economies. In our ‘farmyard’ video we said that 1% of Americans pay 40% of income taxes. That was then! Today the figure is 46%. In 1979 (just 35 years ago) it was a mere 18%.

We can’t be too smug in the UK either. 1% of workers pay 28% of income tax. In 1979 it was a mere 11%. More than 40% of American households pay NO income tax. In the UK the number of income tax payers has dropped by 2.2 million. And with populist politicians spouting `squeeze the rich` rhetoric, this can only get worse.

Many rich American/British High Net Worth Individuals see these numbers as a wake up call. The way the figures are moving makes low-tax foreign jurisdictions look more and more attractive. If, as we predict in our upcoming book, these HNWIs turn into Golden Geese and fly away, then this will have a hugely disproportionate effect on tax revenue.

The ten year rule is no more

I recently got a message from a Facebook friend Mike Lapke in respect of the way the US taxes Golden Geese. This is what he said. “One other thing to consider is that the IRS (tax collectors in the US) still require expatriates to pay income tax for 10 years after they leave the country. Technically you could just not pay but you better never ever come back!”

I was sure this was incorrect, but to double check I spoke with my co-author David Lesperance, who is a tax lawyer who has been dealing with US expatriation for over 2 decades. He had the following observations:

The “10 year rule” has been gone since June 2008. It was replaced by a “mark to market” capital gains “deemed disposition” for those Golden Geese who exceed a certain average US income tax paid benchmark OR net worth. The test are contained in IRS form 88854, and those Golden Geese who trigger the test are called “Covered Expatriates”. This deemed disposition just brings forward an existing tax liability that was going to be paid when the asset was sold or when the person died. Often mistakenly called an “Exit Tax”, it is not a new tax, just the triggering of an existing tax (with normal capital gains exemptions and deductions). The 10 year rule applied to certain expatriates prior to June 2008 and even then only applied to the expatriates ongoing US source income and US situs property (which one obviously minimized or eliminated). In short, it had little to no impact on the expatriate when it was in existence. The rules are here (http://www.irs.gov/Individuals/International-Taxpayers/Expatriation-Tax);

With regards to the dismissal of other jurisdictions, Mike makes a common but fundamental mistake of focusing on “tax rates”. Most people do not know the “ Personal Tax Equation” that determines exactly the size of check that a person writes to the US Treasury . Specifically “Taxable Income/Capital gains” times “Applicable Tax Rates” equals “Taxes Owed”. The countries listed all allow a new tax resident to greatly reduce or eliminate their taxable income. The result is that even if they have a higher rate than the US, the amount of tax actually paid is tiny.

This misunderstanding about tax rates is also used by US politicians and others to promote Tax the Rich policies. In August 2011, Warren Buffet pressed a hot button in the American electorate by writing a New York Times op ed (http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=0) where he made the statement that he pays a lower RATE of tax than everyone in his office. This little factoid soon quickly got repeated as “Warren Buffett pays less tax than his secretary”. Even President Obama in his 2012 State of the Union Address, said “but asking a billionaire to pay at least as much as his secretary in taxes … most Americans would call that common sense” (see from 1:16 in this video http://www.youtube.com/watch?v=VbV-1L5JMA4) to draw support for his “Buffett Rule” tax hike proposal (http://en.wikipedia.org/wiki/Buffett_Rule).

President Obama and other proponents of “Tax the Rich” policies who make similar statements seem to be trying to pull a fast one to stoke public outrage. In the real world, Warren Buffet probably makes most of his money in a year by selling shares which have grown in value or receiving dividends. He draws relatively little in the way of salary. Therefore he would mostly be paying at a lower capital gains rate. In contrast, his secretary, Debbie Bosanek draws most if not all of her annual compensation in source deducted salary. She would be paying income tax rates on this salary, along with payroll and medicare tax. Although there is a great deal of controversy about the accuracy of the numbers that Warren Buffett later threw around in interviews (http://www.theatlantic.com/business/archive/2012/01/how-rich-is-warren-buffetts-secretary/252056/), let’s take his numbers at face value and find out what happens when you plug them into the tax equation. Now ask yourself “If you are the US government, would you rather receive Warren Buffet’s check for $6,923,494 (http://www.forbes.com/sites/matthewcampione/2011/10/14/warren-buffetts-tax-return-and-what-congress-already-knew/) or Ms. Bosanek’s check for $21,480?

Death Duties on the Living

It just had to come. HMRC, the tax authorities in the UK, now can’t wait for you to die. They want to take their 40% cut before you pop your clogs. Maybe they are frightened that you’ve found a way of taking it with you?

Anyway, they now propose to charge you death duties in advance of you dying – just in case you find a clever way of hiding the money from them. I suppose it’s preferable to killing you for your money. No doubt that `solution` will be on the agenda soon.

I’m sure they have a committee who sole job is to dream up new ways of stealing from taxpayers. I can see the proposal now: Enforced Euthanasia. Not only do they benefit from an early collection of death duties (euphemistically called Inheritance Tax), it means no future expenditure by the NHS or state pensions. I’m surprised they don’t make smoking compulsory, so they both tax the means of self-destruction, and also lung cancer delivers death duties early.

I read somewhere that Price Waterhouse, or one of the large auditors, have calculated that adding in all the taxes, including death duties, over a lifetime each Brit pays more than 70% of their earnings to the state. I’ve lost the reference, so if anyone knows where to find it please drop me a line.

So it’s no wonder that the rich elderly Golden Geese look longingly towards Canada and Australia, countries with no Death Duties.

The cost of dying index

Forget about the `cost of living`, the `cost of dying` has increased substantially for many in the UK. Because of large increase in the cost of real estate over recent years, the proportion of properties in Britain that have now fallen into the net of `death duties` (inheritance tax) has gone up from 13.5% to 20% in just five years. And remember when the final tax bill is calculated, the value of the goods, chattels, bank accounts and investments left in the deceased’s estate are added to the taxable total.

This increase is because the threshold of this 40% tax, £325,000, hasn’t changed since 2009. What  a devious way to to raise the tax take. Last years receipts of £3.4 billion have gone up 20% over the intervening five years. London and the South East are hardest hit of course: 47% of London houses and 27% of SE houses are now over the threshold. In Kensington and Chelsea 96% of properties are hit.

Canada, with no estate taxes, is looking increasingly attractive to elderly British high net worth individuals, who because of death duties, are contemplating becoming Golden Geese.

Dominica: destination of choice

Dominica: the destination of choice for many Golden Geese. So says a recent BBC online news article.

Surely not? A quick check of the CIA Factbook will show it is an island 751 square kilometers in area, with a population of 73,449. I ask myself, ‘but would I want to live there?’

But then I imagined my co-author David’s response ringing in my ears. ‘Because of all the islands in the Caribbean, its price for selling a passport is still the lowest. You can buy citizenship there for around $100,000 dollars, after being interviewed by a government committee. And who mentioned anything about living there?’

‘Remember it’s only a passport … merely a travel document. Dominica is a member of the Commonwealth, and so passport holders have special privileges in the UK. They can also travel to around 50 countries without a visa. It’s estimated that some 3000 Golden Geese have already made the flight there.’

Enough said.

Golden Visas for Golden Geese

Under the Portuguese Residence Programme, Foreign investors who spend 500,000 euros on property in the country have the right to live there. ‘Golden Visas’ are also available to those who invest a million euros in capital, or create 10 jobs in Portugal.

For this successful applicants have unfettered travel around the Schengen area, and after six years they can apply for Portuguese citizenship. Starting in 2012, 734 of these Golden Visas have been issuedto date , raising inward investment of nearly half a billion euros. Nearly six hundred of these have come from China.

Spain has a similar scheme, but they are being undercut by Cyprus with its price tag of 300,000 euros. Greece comes in even lower at 250,000 euros.

Is this the shape of things to come?

Thanks again to BBC News online for the information.

Tax Arbitrage

Last evening I was talking on Skype to my good friend David Lesperance, the co-author of our up-coming book, Flight of the Golden Geese. Out of the blue he announced that a significant part of his tax business was helping Canadians transfer to the UK, while at the same time he was facilitating the move of Brits to Canada. At first this sounded crazy to me. Surely one country had to be more tax friendly than the other, and the tax-flight traffic would be all one way. Not so. He explained the phenomenon in terms of differences in tax arbitrage between the two countries.

The Brits were wealthy, and shall we say of a more advanced age. They were seeking permanent tax domicile in Canada, a country that has no Estate Tax – that’s Death Duties in the UK. As Canadian domiciles, when they died their assets and property would be handed over lock, stock and barrel to the named beneficiaries in their wills. If they had stayed in the UK the state would have taken a huge slice (40% of everything over £325,000).

Meanwhile the Canadians were seeking non-dom status in the UK, which meant they would only pay tax on income earned in the UK, but not on capital brought onshore. David once stayed in England for a while, and with no business here, he paid no income tax. Of course he still had to pay to live here, which brought a decent sum into the economy.

The likes of IMF Boss, Christine Lagarde, and others hint at ‘fair taxation’ being necessary to maintain a stable economy, and that states should not set tax rates detrimental to others. This is code for standardizing global taxation … a non-starter. In such standardization would the UK accept the end to Death Duties? Of course not. It would insist on Canada imposing 40%. As for non-dom status, the US would insist that their system of tax based on citizenship be imposed everywhere. At present only three countries use this system … three bastions of democracy: USA, Eritrea and North Korea. The result of standardization would be each tax moving to the highest rate in the world. Hey ho! It won’t happen. Haven’t these tax people heard of the prisoner’s dilemma?

What is it with the French political elite?

Thomas Piketty talks bo***cks in his book ‘Capital in the Twenty-First Century’. President Hollande’s idiotic policies are driving away France’s Golden Geese from its shores in droves. Just ask Gerard Depardieu.

Now Christine Lagarde, the French managing director of the International Monetary Fund, is following suit in her recent address to the Inclusive Capitalism Conference. She doesn’t see the irony in the IMF promoting social equality. See http://www.imf.org/external/np/speeches/2014/052714.htm .

She says that persistent ethical failings among bankers, together with rising inequality, are undermining growth and financial stability. “The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship.” She may well be right about the banking industry, but to say that rising inequality is a barrier to growth, and could undermine democracy and human rights, is pure ideological cant.

Listen to her words: “One of the leading economic stories of our time is rising income inequality, and the dark shadow it casts across the global economy.” She quoted Oxfam’s claim that the world’s richest 85 people control the same wealth as the poorest half of the global population of 3.5 billion people.

“We must recognise that reducing inequality is not easy. Redistributive policies always produce winners and losers. Yet if we want capitalism to do its job – enabling as many people as possible to participate and benefit from the economy – then it needs to be more inclusive. That means addressing extreme income disparity.”

This is not rational economic theory, rather mere sentimentality. Her options to address inequality include more progressive taxation and greater use of property taxes. In other words Capitalism must stop being Capitalism. Risk takers must subsidize the risk averse, and the political elite will sort it all out. Just like Hollande in France? What arrogance! Jesus understood that “the poor you will always have with you …” Mathew 26:11.

How can the boss of the IMF fail to grasp both the moral jeopardy in her proposals, and that inequality is the engine of wealth creation? Redistribution is just interference by incompetents, knaves and the naive. The winners in Redistribution she refers to are the parasites in the political elite.

I’m not saying that “Greed is Good”. However, we should never lose sight of the fact that there is a Calvinistic morality in profit. The alternative, the slime mould of collectivism, will always create a dependency culture that ultimately destroys innovation, precipitates the entry of organized crime into business, and undermines the ability of trade to generate wealth.

And in the words of that great American vaudeville singer and philosopher, Sophie Tucker: “I’ve been rich and I’ve been poor. Believe me, honey, rich is better.”