Tax take from non-doms falls to near record low

International tax

The amount of tax paid by non-domiciled individuals has fallen dramatically since last year, clocking in at £7.54bn, down from a record high of £9.49bn last year

The gap in income tax, capitals gains tax and National Insurance contributions paid by non-doms between 2016-17 and 2017-18 amounts to a 20.5% decrease in revenue and is the second lowest figure since 2007-08.

HMRC reports that 78,300 individuals claimed non-domiciled taxpayer (non-dom) status in the UK on their self-assessment tax returns in 2017-18, a fall of 13.5% from 90,500 in 2016-17.

Although a near record low for tax takings from non-doms, this has not resulted in a fall in revenue to the Exchequer as many of the previous non-domiciled taxpayers are now paying under domiciled status, HMRC said.

Non-domiciled individuals are taxed only on income and capital gains which arise in the UK, paying UK tax only on money remitted into the country, while the vast majority of taxpayers who are considered to be domiciled pay tax on income and capital gains whether they arise in the UK or abroad. The vast majority of non-dom taxpayers are UK resident, with 75,900 classed as resident and 2,400 classed as non-resident in 2017-18.

HMRC said the fall in non-dom numbers was caused in equal measures by individuals switching to domiciled status, while continuing to pay tax in the UK, and individuals leaving the UK tax system.

Of those individuals who were non-doms between 2016-17 and 2017-18, HMRC reported that there was a slight increase in the amount of tax and NICs paid.

Part of the reduction in the number of non-doms can be traced to the new deemed-domiciled rules that came into effect in April 2017 which make it more difficult to claim non-domiciled status if you were born in the UK and it is your domicile of origin or you have been a UK resident for 15 of the 20 tax years prior to the filing year.

The fall in non-domiciled claims in the past year follows a large drop in non-domiciled status between 2015-16 and 2016-17, which HMRC also attributed to people switching from non-domiciled to domiciled status or leaving the UK tax system.

The amount paid by remittance basis claimants has risen steadily in the past nine years, from around £5.27bn in 2008-09 to £7.71bn in 2016-17, while the amount paid by arising basis claimants has remained fairly steady over the same period, totalling around £1.9bn in 2008-09 and £1.7bn in 2016-17.

London had the largest non-domiciled taxpayer population in 2016-17 with 58% of non-dom taxpayers residing there, accounting for 76% of income tax, capital gains tax and NICs paid by non-doms.

International law firm Pinsent Masons points out that the revenue from the remittance basis charge (RBC), also known as the non-dom levy, was only £315m, compared to overall tax revenues from non-doms of £7.5bn last year. This annual charge could be £30,000-£60,000 depending on how long the individual has been a UK resident.

Josie Hills, senior tax manager at Pinsent Masons, said, ‘Brexit uncertainty is driving out many of the wealthiest non-doms who are not prepared to hang around to find out the outcome.

‘The prospect of a Labour government is also very unappealing for high net worths – talk of monetary controls and wealth taxes are not well received. Given that there could be a general election in the near future, many will not be willing to take the risk that this becomes a reality.’

Hills said non-doms contributed £45bn in tax over the past five years. ‘The impacts of falling tax receipts from non-doms may only be felt once it’s too late,’ she said. ‘The new deemed domicile rules, which can draw non-doms fully into the UK tax net if simple conditions are met, may have also contributed to the drop in numbers. Non-doms are internationally mobile and if the UK is no longer an attractive place for them, then they can easily relocate.’

Rebecca Fisher, partner in the private client team at law firm Russell-Cooke, also commented on the ‘Brexit effect’ on non-doms. ‘Looking ahead, many non-doms will be actively considering their positions and will likely be facing a choice between either UK-domiciled or seeking to move their affairs to another jurisdiction. With the government gearing up to manage the fall out of Brexit – deal or no deal – it will be interesting to see whether there is a move to arrest the non-dom slide and do more to encourage international wealth to invest and spend in the UK, building on the success of the Business Investment Relief,’ she said.

James Hender, head of private wealth at Saffery Champness, said: ‘Looking at the figures, the government’s non-dom reforms may have started to bite, impacting the number of people claiming non-dom status.  

‘Indeed, the change in non-dom rules from April 2017 is arguably the main driver of the continued fall, with many people no longer able to benefit from non-dom treatment and so would have dropped out of the figures.

‘The drop though doesn’t yet indicate a radical exodus of the wealthy from the UK and is perhaps not as impactful to the Exchequer as it may first appear.’

Non-domiciled taxpayers in the UK

Tom Reeve | 08-08-2019

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