Out-Law News 2 min. read

Annual tax take from non-doms could be at risk when concessions abolished, says expert


UK income tax paid by individuals based in the UK, but 'non-domiciled' for tax purposes, increased by 7% last year to reach £6.6 billion, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com.

Tax expert Fiona Fernie of Pinsent Masons, the law firm behind Out-Law.com, said that the growing figure showed the dramatic impact that plans to abolish long-term non-dom status from April 2017 could have on the UK economy, particularly if many of those who currently benefit from the special tax status are encouraged to leave the UK.

"Each year, non-doms contribute a far greater amount to the UK exchequer than many realise, and in the last year that contribution has in fact risen," she said.

"As a group they bring a wealth of skills, connections and knowledge to the UK. They also create jobs through investment in UK-based businesses. If they relocate to a more welcoming tax regime, even if they choose to retain some of their UK operations, they will inevitably take the best-paid management jobs with them to a new headquarters. Non-doms' combined spending, investment and philanthropic power is huge, and the value of their input should not be dismissed," she said.

HM Revenue and Customs (HMRC) collected £6.6bn in income tax from registered non-domiciled taxpayers in 2013/14, up from £6.18bn in 2012/13, according to the figures. In addition, the total number of UK taxpayers indicating a non-domiciled status on their tax returns increased by 3% over the same period, from 110,700 in 2012/13 to 114,300 in 2013/14.

Non-doms are eligible to be taxed under the remittance basis of taxation, which allows them to only pay UK tax on income and gains in the UK, rather than on their worldwide income and gains, as is generally the case for UK-domiciled individuals.  Non-domiciled taxpayers who have lived in the UK for at least seven out of the past nine tax years have to pay the remittance basis charge if they wish to continue being taxed under the remittance basis.  According to figures, the remittance basis charge raised an additional £223 million from around 5,000 non-dom taxpayers both last year and the year before. Non-doms also pay significant amounts to the UK exchequer in capital gains tax (CGT) and transactional taxes, such as VAT.

As announced at the Summer Budget, from 6 April 2017, the UK government intends to abolish non-dom status for taxpayers who have been resident in the UK for 15 out of the previous 20 tax years. Taxpayers would then be deemed 'domiciled' for the purposes of income tax, CGT and inheritance tax (IHT) and would no longer be able to be taxed on the remittance basis on their non-UK income and gains.

The government also intends to bring all UK residential property held directly or indirectly by non-doms into charge for IHT purposes, even when the property is owned through an offshore company or partnership. Properties that are 'enveloped', meaning held by companies or other structures, are already subject to an annual tax on enveloped dwellings (ATED) and to higher rates of stamp duty land tax (SDLT) when purchased.

Fernie said that the changes announced in the Summer Budget had already encouraged many non-doms to "reassess their position", particularly as many of them were already internationally mobile. In the 2012/13 tax year around a quarter of those claiming non-dom status did so for the first time, even though the total number of non-doms had actually fallen by 1,000 when compared with the previous year; suggesting that significant numbers of non-doms left the UK during that period, she said.

"London is enormously attractive in terms of its cultural life, economic stability and the education opportunities it offers, but wealthy families can easily access all of that without actually living in the UK and spending and investing as much as they do now," she said.

"Any mass exodus of non-doms would be a substantial hit to the UK economy. Even the departure of a few of those who have invested the most in the UK would be damaging," she said.

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