Those wishing for the end of the UK non-dom regime now need to face data showing that the decline of non-doms has also hit tax revenues, and those flows may head to countries such as Italy and Ireland.
The number of new non-domiciled taxpayers in the UK plunged by 40
per cent in the tax year ending on 5 April 2021. The data
suggests that this cohort of high net worth individuals is
shrinking even before the system is possibly abolished.
Figures provided by law firm Pinsent Masons showed that the number of non-doms dropped from 14,200 to 8,500.
A UK non-dom is a person who is resident in the UK but does not intend to live in the UK permanently and so, for tax purposes, is not considered to be domiciled in the country.
“Non-doms make a highly valuable contribution to the UK economy
and any substantial falls in their number could have a
significant long-term impact. The government needs to consider
what it may lose by placing their status under threat,” Sophie
Warren, tax investigations expert at Pinsent Masons, said in a
statement about the data.
Warren argues that non-doms bring significant investment and make substantial tax contributions to the UK; data from HMRC shows that non-doms paid £7.9 billion ($9.42 billion) in taxes during the past year. However, in the period following Brexit and non-dom tax reforms which made the UK’s non-dom regime less generous, the amount of tax paid by non-doms fell by £2 billion from £9.65 billion in 2017 to £7.65 billion in 2018.
Already, the regime has drawn political heat, with Labour Party leader and official opposition head Sir Keir Starmer calling for the system, which dates back two centuries, to be scrapped. (Labour is currently ahead of the ruling Conservative Party by a large margin. A general election must be held by December 2024.) Defenders of the system argue that non-doms bring in net revenues to the UK, that it is legitimate for people not to be taxed on worldwide income if it stays where it was sourced rather than being brought into the UK, and that rival jurisdictions such as Italy and Ireland will take the business instead if non-doms leave the UK.
The figures are also a blow to the UK when there are concerns that the government hasn’t sufficiently exploited tax and regulatory divergence from the EU post-Brexit to make living in the UK more attractive to entrepeneurs and wealthy investors. Britain is already paying the highest tax burden since the early 1950s. A narrower tax base could force that up even further.
Among those who have in the past used non-dom status are Russians
– a sensitive point since sanctions were placed on designated
persons last year following Russia’s invasion of Ukraine.
The total number of non-doms in the UK has fallen by 11 per cent to 68,300 in the most recent tax year, down from 76,500 the previous year.
Non-doms pay tax on their UK income and on money they bring into the UK but do not pay tax on other income and capital gains that they make outside of the UK.
“Many non-doms are highly successful entrepreneurs who have established or invested in UK companies. The availability of non-dom status gives the UK a competitive advantage in attracting talented and wealthy individuals. Altering this status now would cause many to consider relocating,” Warren said.
This news service discussed the non-dom system and parallel structures in Europe last year with Stephenson Harwood partner and lawyer James Quarmby in this WEALTH TALK video.
The UK has a territorial tax code, as do most nations other than the US. Income and wealth sourced in the UK, for example, is taxed. Money that stays out of the UK and is not remitted to the country is not taxed (there are some caveats to this). (See this link for more commentary and analysis on the system.)