Non-Dom Tax Decrease Is Warning For UK Government - Law Firm

Robbie Lawther

31 July 2018

The sudden fall in the number of people claiming non-domiciled status on their tax return should be a warning sign to the UK government with Brexit around the corner, says international law firm today show that there was a 23 per cent fall in the number of individuals claiming non-domiciled tax status, down from 118,000 in 2015/16 to 91,100 in 2016/17.

Whilst part of that reduction may be from individuals dropping their non-dom tax status, HMRC says that the fall in numbers will also be from non-doms leaving the UK.

“A lot of non-doms have seen the Government’s increasingly aggressive stance taken towards them, and decided enough is enough,” Anne Healy-McAdam, tax director at Pinsent Masons. “With Brexit fast approaching, the UK will need to encourage as much inward investment as possible. Some non-doms seem to have evaluated the political landscape in the UK and decided that they would be better off being based elsewhere.”

Healy-McAdam added: “UK non-domiciled taxpayers are among the most geographically mobile citizens in the world, and the move by the UK government to tax their global income has made many of them think they can get a better deal elsewhere. Non-domiciled tax payers invest large sums of money into the UK and create thousands of jobs through their businesses. There is a real risk that the UK will lose much of this if it continues to encourage non-doms to go elsewhere. Non-doms currently pay around £9.4 billion ($12.3 billion) in tax and NIC in the UK – a lot is at stake.”

Other financial institutions have weighed in on the matter, a manager at accounting, tax and advisory firm Blick Rothenberg also believes the country needs to ensure it is attractive for overseas individuals.

“Non-doms and the tax they pay play an important role in this country’s finances," said Paul Haywood-Schiefer, manager at Blick Rothenberg. "The regime is seen by many as outdated, but along with initiatives like Business Investment Relief, provides the UK with a great opportunity for inward investment, especially as many Non-doms are flexible when it comes to where they live. The rules have changed now to include a deemed domicile rule for long term residents, which will certainly have been the cause for much of the drop in the number of Non-doms living in the UK post 2015/16, and I’d expect there may be a further drop in 2017/18 when the figures are announced next year. Therefore, it will be important for the Government to ensure that the UK remains an attractive place for overseas individuals to come to live, work and invest in the future, especially in light of Brexit.”

Haywood-Schiefer added: “Despite Non-doms representing just 0.3 per cent of taxpayers (about 91,100 out of 30.8 million in the UK), they contribute tenfold that figure (a total of 3 per cent) of the combined Income Tax, Capital Gains Tax and National Insurance. Despite this, the number of Non-doms is falling by 27,000 in a year. In addition to the tax contributed, Non-doms also made significant investments into UK companies. Figures released show that in the 2015/16 tax year (the last year for which the Government have publish the statistics) Non-doms invested a total of £894 million in UK companies, giving a combined total of £2.4 billion since the Government introduced the Business Investment Relief initiative to facilitate and encourage overseas investment into UK businesses.”

This comes at a time when people are still uncertain about their futures, with the Brexit negotiations failing to highlight what the outcome of the UK's exit from the EU will actually be.

However, in July, this publication reported that the number of millionaires and billionaires applying to move to the UK as part of the Tier 1 investor visa programme rose by 46 per cent last year.