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Non-dom tax take drops by two billion in UK

Thursday, 8 August, 2019

The number of non-domiciled taxpayers in the UK fell by 13.5 per cent to 78,300 in the 2017-2018 tax year, according to recent figures from HMRC.

The dramatic fall in numbers coincided with the introduction of wide-ranging reforms to the taxation of resident non-domiciled individuals, including rules introduced in April 2017, under which long-staying non-doms would be deemed domiciled and taxed on their worldwide income and assets, as are ordinary residents. Further reforms were introduced the following tax year.

About half of the decline in non-dom numbers resulted from individuals leaving the UK, said HMRC's statistical analysis. The other half consisted of non-domiciled individuals switching to domiciled status, often under the new deemed-domiciled rules, and continuing to pay UK tax.

The effect on tax paid was striking. The amount of income tax, capital gains tax and national insurance contributions collected from non-doms dropped from GBP9.5 billion in 2016-2017 to GBP7.54 billion in 2017-2018: a difference of nearly GBP2 billion.

The figures agree with a survey conducted last November by accountancy firm Moore Stephens, which suggested that a quarter of non-doms were planning to leave the UK within a year. The most common reason is the much stricter rules on taxation of non-doms, including the GBP60,000 annual remittance basis charge; the deemed-domicile rules for long-term non-doms; and the 'failure to correct' legislation which introduced heavy new penalties for offshore non-compliance.

However, HMRC claims the exodus has not reduced the Exchequer's total revenues. Instead, it says, decrease in tax and national insurance contributions in these statistics comes from taxpayers who were previously non-domiciled becoming domiciled.

The statistics also show that London has the largest non-domiciled taxpayer population. In 2016-2017, the latest year for which a breakdown is available, 58 per cent of UK non-doms lived in London. The city also has the largest population of non-doms being taxed on the remittance basis.

Non-doms also contributed heavily to UK business investment. In 2016-2017 alone, GBP979 million was invested in the UK from 500 non-domiciled taxpayers: the highest annual amount since the business investment relief scheme was introduced. Nearly GBP3.5 billion of business investment relief has been claimed since its introduction, with the number of individuals using it having grown every year.

Sources