Baker Tilly, the advisor and wealth manager, has urged the Government to refrain from taxing non-domiciled individuals and instead embrace the foreign billionaires living in the UK.

 

According to the Sunday Times Rich List, the UK has more billionaires per head of population than any other country. Many of them are non-doms and been vilified in recent years by the press - depicted as scroungers living off the UK for cheap. 

 

The Conservative/Liberal Democrat-led government had considered a £100,000 ($167,664) entry levy on non-doms in 2010 and a tightening of the rules that would bring them into the inheritance tax net - however as yet this not been implemented. Non-doms are taxed £30,000 on non-UK income or £50,000 if they have been resident in the UK for over 12 years.

 

But according to Gary Heynes, national head of private clients at Baker Tilly, there is a real chance the £100,000 threshold will be implemented if a Labour government or Labour/Liberal Democrat coalition is elected to power in 2015 leading to the possibility of a non-dom mass exodus. 

 

“The less wealthy non-doms would likely drop out of the system and leave the UK,” Heynes said. “And if the tax benefits are taken away then you have to hope the other infastructure such as restaurants and entertainment etc are enough to persuade the rich non-doms to stay.”

 

The firm's warnings add to concerns that the UK has a mixed approach to wealthy foreigners. On the one hand, it has an investment visa programme designed to encourage high net worth individuals to put money into the country, and has sought to clarify its residency test and non-dom regime; the existing government also cut the top rate of income tax to 45 per cent from 50 per cent. The UK is seen as a relatively attractive location for foreigners, such as those from regions where the rule of law and security of property is less stable. But there are concerns that some UK laws are unfriendly. (See here.)

Baker Tilly argues that if the non-doms left it would be a huge blow to the British economy. The company says they make large contributions through indirect taxes, such as VAT. The firm added that these wealthy individuals are one of the reasons behind the UK’s economic recovery.

 

“Think about VAT – 20 per cent on cars, luxury goods, restaurant bills, entertainment and general indulgent spending, will add up to a significant amount of tax,” the company said in a statement. “How about construction companies, building or redeveloping properties, who ultimately pay corporation tax, income tax and other employment taxes?  Or consider the large employment provided in the UK and linked employment taxes.”

 

Baker Tilly also warned against introducing similar policies to those that have been implemented in countries like France where there is a 75 per cent tax on high earners. This led to the famous French actor Gerard Depardieu becoming a Russian citizen, while top football players in the country threatened strike action.

 

“The booming state of the UK economy must be in part related to the growth in wealthy individuals choosing the UK as their home,” Baker Tilly added. “It can only be hoped that the government, whichever party that may be, continue to make the UK an attractive place for the wealthy and don’t follow the path of some countries and impose exorbitant taxes which kill the Golden Goose.”

 

In April it was revealed income taxes paid by foreigners living in Britain rose by a fifth to a record £6.8 billion (£11.4 billion) in the three years to 2011-12, meaning foreigners living in the UK are paying more income tax in Britain than ever before.

 

“Non-doms are often portrayed as a group of plutocrats who add little to the UK economy and exploit loopholes to pay no tax,” said Jason Collins, head of tax at Pinsent Masons. “In fact the amount they have paid in income tax is up 19 per cent in the past three years alone.”