Foreigners living in the UK are paying more income tax in Britain than ever before and are unfairly portrayed as tax dodgers and a drain on the economy, says law firm Pinsent Masons.

Foreigners living in the UK are paying more income tax in Britain than ever before and are unfairly portrayed as tax dodgers and a drain on the economy, says law firm Pinsent Masons.

Non-domiciles paid £6.8 billion ($11.4 billion) in 2011/12 - the last tax year for which there is data available. This figure makes up over 4 per cent of UK income tax and is up 8 per cent from £6.3 billion in the previous year.

“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.”

So important is there contribution that the UK government should be careful about overtaxing them, Collins added.

Non-doms can opt not to pay tax to the UK Government on their income and capital gains that are based outside the UK as long as they do not bring that income into the UK. However, they still have to pay tax on income that they generate in the UK.

In 2008 a non-dom levy was introduced meaning those who had been resident in the UK for seven or more years were obliged to pay an annual levy of £30,000 should they want to continue to exclude their earnings made outside of the UK from their UK income tax bill. This has recently been increased to £50,000 for those who have been in the UK for more than ten years.

However this has raised just £178 million in five years, or 2.6 per cent of the UK income tax paid by non-doms.

On top of this the UK Government has also recently increased the tax it charges on residential properties owned through a company – a popular way for non-doms to invest in UK residential property. The 2014 budget announced a reduction in the threshold for the enveloped dwelling tax from £2 million to £500,000 to be introduced over two years.

“Whilst the instability caused by the Arab Spring saw an increase in non-domiciles living in the UK, there is the risk that if we heap more taxes on non-doms we will drive them away,” Collins added. 

“They have huge spending power, invest in UK businesses and create thousands of jobs in the UK. They can’t do this if they aren’t here so the Treasury needs to be careful that they don’t kill the golden goose by overtaxing it. There are plenty of other countries competing to welcome these non-doms to their shores.”