Domestic tax changes have arguably been a bigger factor than Brexit in driving down the numbers of resident non-doms in the UK.
Wealth managers have sounded the alarm after official data showed that the number of resident non-domiciled people living in the UK has fallen to 78,300 in the latest financial year (2017-2018) from 90,500 a year earlier. Figures also show that this group paid in less tax, suggesting that the squeeze on numbers has backfired, as some had warned.
Tax changes that kicked in from April 2017 meant that non-doms became domiciled for tax purposes, including capital gains and income tax if they had been resident for 15 out of the last 20 years. Before, this rule only applied if they had been resident for 17 out of 20 years and only inheritance tax was involved.
The domestic tax change has arguably been a bigger blow than uncertainties surrounding Brexit, Rebecca Fisher, partner in the private client team at law firm Russell-Cooke, said.
The tax regime for owning property has probably been the biggest blow, she said. “The property clampdown shows no sign of abating, with non-residents and non-doms now having to pay CGT on UK commercial property with effect from 6 April 2019,” she continued.
“Of course, Brexit has contributed to the uncertainty for non-residents and non-doms, particularly in relation to the tax allowances in place by virtue of our membership of the EU. For example, the UK gives up to 100 per cent relief on shares in a private trading company wherever based in the world, on death. Conversely, similar relief applies in some EU countries but that is only on the basis that the company is based in the EU. For example, a German resident owning a UK trading business post Brexit may not get the same tax relief as whilst a member of the EU,” Fisher said.
Advisors said that while the squeeze on non-doms might be politically popular, it is foolish on tax revenue grounds. Non-dom taxpayers paid £7.539 billion ($9.2 billion) in UK income tax, CGT and National Insurance contributions in 2017-18. This is a fall from the previous year’s estimate of £9.489 billion.
“These figures prove that the policy change did not work, but they also give cause for alarm,” Mark Davies, managing director of Mark Davies & Associates, said.
“Firstly, HMRC has not released all the 2017-18 figures, which may be deliberate. Secondly, in 2016-17 the average non-dom is worth approx. £100,000 per person to the Exchequer but the average long-term resident non-dom is worth £500,000 per person to the Exchequer. These chaps would have become deemed-domiciled in 2017-18 and therefore those most likely to leave as the change in rules has the greater impact. But we don’t have the figures to know,” Davies said.
“I don’t actually believe then when they say that the tax take from new non-doms equals those that left, as the average figures prove. New non-doms are more likely to have tax planning and less investment in the UK. Once they have been here some time they are likely to pay the remittance basis charge, tax planning is less efficient due to changes in law, and they have invested more in the UK,” he added.
Chris Gillman, private client senior manager at accountancy firm, Menzies LLP, said: “For many years, the UK has been an attractive place to live due to its comparatively stable economic and political system. Now, with Brexit dominating the political and economic agenda, non-doms have been left feeling somewhat unwanted and the UK economy is losing out as a result.”