There are new rules affecting high net worth individuals using the non-domicile system in the UK, and not everyone is happy.

Changes to the UK’s non-domicile system, which kicked in at the end of last week at the start of the new tax year, could reduce government revenues if more than two-fifths of those affected choose to quit the UK as could be the case, according to Irwin Mitchell Private Wealth, the law firm, in a new report.

And other professionals working in this space have weighed in with their concerns about how non-domiciled (“non-doms”) individuals have been treated by tax authorities could reduce, rather than increase, revenues. (Click here to see other recent comments on the issue.)

In 2015, George Osborne, finance minister at the time, brought in changes to tax rules for individuals who are not domiciled in the UK. The change affected non-doms who have resided in the UK for at least 15 out of the past 20 years. After 5 April this year, they are deemed to be UK domiciled for all UK tax purposes, which means their foreign and UK assets are subject to inheritance tax, for example. The decision to scrap so-called permanent non-dom status was seen as responding to public clamour to end a tax system seemed as unjustly generous to wealthy foreigners.

Irwin Mitchell Private Wealth and the Centre for Economic and Business Research set out possible outcomes if those affected by the changes leave the country. The report said there have been a growing number of individuals claiming non-dom status in recent years with an estimated 122,708 registered in 2016-17. However, the number of people claiming non-dom status is predicted to fall sharply (12 per cent in 2017-18) as the reforms bite. 

The report also highlights that the 119,260 individuals who claimed non-dom status in 2014-15 generated income and capital gains tax of £6.9 billion, accounting for roughly 4 per cent of total income and capital gains tax receipts received by the UK government. 

The Office for Budget Responsibility, a body set up by the government to provide forecasts, projects that the changes to non-dom taxation will generate an additional £995 million over the next four years. If there are significant departures of non-doms from the UK, for the OBR’s target to be met, there will have to be a significant increase in arrivals of non-doms to the UK or individuals who lose their non-dom status but remain UK resident will have to generate £2.6 billion in tax revenues until the tax year 2020-21. This equals around £256,411 per individual per year.

If fewer than 38 per cent of those individuals who currently use the remittance basis but will lose their non-dom status leave the UK, the net revenue impact of the changes will be positive. However, if more than 38 per cent leave, the changes could have a negative effect.

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Rupert Clarey, partner at Maitland, the global advisory and administration firm, sounded a reassuring note, saying that the eventual outcome at least removes earlier uncertainties.
 
“Since the government announced reforms to UK non-dom tax rules nearly two years ago, we have seen a great deal of uncertainty and anxiety from existing and potential clients. This is largely to do with the fact that the final details were not released until just a few weeks ago on 20 March despite being first announced in July 2015. Prior to this many non-doms were left to speculate on how the new regime would impact them. This of course led to a mood of insecurity and added to a general feeling that their contribution to the UK was not being valued,” he said.
 
“The UK’s non-dom regime has long been seen as one of the most attractive tax systems in the world and there have been fears that the new rules will lessen this appeal to those considering relocating to the UK and potentially prompt many long term UK resident non-doms to leave the country.  However, now that the final details have been confirmed many non-doms are breathing a sigh of relief. After initial worries, the new regime is in our view fair and well balanced and our clients are ready to adapt to the changes,” he said. 

Andrew Carey, who is relationship manager at Locate Guernsey, an organisation helping individuals and firms to move to Guernsey said: “The importance of today [start of new system] should not be understated - from now on thousands of HNW individuals will be liable to pay significantly more to HMRC [UK tax authority]. This essentially marks the undoing of the non-dom status, a regime which has served the UK well for over a century.
 
“Given that the Chancellor [currently Philip Hammond] did not provide reassurances to the HNW individual community in his Autumn Statement and Spring Budget, perhaps this should not come as a huge surprise. Nonetheless, HNW individuals might have hoped for at least a softening of the government’s position and will now be left hugely disappointed,” he added.