Tax expert Jason Collins of Pinsent Masons said that the figures showed that the UK tax system was perceived as "becoming increasingly hostile" to high net worth individuals (HNWIs), particularly those from overseas. The number of taxpayers registered to pay the annual remittance basis charge on non-domiciled taxpayers fell by a further 2,000 over the tax year ending 31 March 2011, and has dropped by 17% since the levy was introduced in 2008.
'Domicile' is a complex concept that that has been defined by a long line of cases and means essentially where a taxpayer has his or her permanent home. Domicile is distinct from both nationality, and place of residence in a given tax year. Individuals who come to the UK from other countries will usually be non-UK domiciled unless they intend to live here permanently and indefinitely.
"There is a conflict here with the Prime Minister's promise to roll out the red carpet for wealthy foreigners, and it is also potentially undermining new tax rules introduced in 2012 to attract non-dom investment in UK businesses," Collins said. "The levy is part of a series of measures, both implemented and threatened – including the annual property tax and mansion taxes, the 50/45p tax rate and capital gains tax increases, which are driving highly mobile wealthy individuals from the UK."
"Non-doms are more important to the UK economy now that ever before. They have a choice about where to live. They have huge spending power, invest in businesses and create jobs. They can't do this if they aren't here - and there are plenty of other countries competing to welcome them to their shores," he said.
Introduced in 2008, the remittance basis charge was originally set at £30,000 a year for all non-domiciled taxpayers ('non-doms') who had been in the UK for seven years or longer. In April 2012, the charge was increased to £50,000 a year for those who have been in the UK for 12 years or longer, while those resident in the UK for between seven and 12 years remain subject to the annual £30,000 charge. Non-doms can opt out of the levy if they agree to pay UK tax on their worldwide income and gains instead.
According to the figures, only 4.8% of non-doms paid the charge last year with the remainder opting to pay income tax on their global earnings. This meant that the charge generated £168 million for the Treasury, according to the figures. Tax expert Jason Collins also pointed out that non-doms were increasingly making shorter term investments and leaving the UK sooner than they would have done previously in order to avoid the charge.
"The threat of the levy is driving High Net Worths away, but to make matters worse it is not even a significant revenue generator to make up for this," Collins said. "Less than 5% of non-doms have paid the levy each year since it has been used."
"Non-doms are now more likely to remain in the UK on a short-term basis to avoid being struck by the levy after seven years. Before, non-doms would make long-term investments, including investments in businesses, but non-doms are now more likely to make shorter-term investments - in things like property - that allow them to leave the UK easily before being hit by the levy. The overall effect is to reduce the positive contribution of non-doms to the UK economy," he said.
Collins said that the UK's overall policy on attracting wealthy entrepreneurs and other HNWIs into the country was "inconsistent".
"On the one hand we have entrepreneur visas and investor visas trying to boost the numbers of wealthy migrants, but on the other hand, wealthy migrants are being driven away by the non-dom levy and the constant stream of new measures to tax them more heavily, creating lots of uncertainty," he said.
Entrepreneur visas allow foreign nationals to start a business in the UK and earn a fast-track to UK citizenship, providing that they can meet strict requirements on access to funding, job creation and business success. According to figures obtained by Pinsent Masons, the number of these visas issued in the year leading up to June 2012 more than doubled from that issued the previous year, from 199 to 462.