Government attempts to curb the number of UK-based non-domiciled taxpayers by increasing annual charges, identifying abuse of the system and changing the three-year rule appear to be failing as non doms paid £6.6bn in total taxes over 2014-15, marking a 7% increase on the previous year
UK-based non doms paid £6.6bn in income tax in 2013/14, up by 7% from £6.18bn in 2012/13,
Despite the sharp rise in tax revenue, law firm Pinsent Masons warns that non doms' contribution to the UK economy, along with substantial investment, skills and job creation, could be put at risk if the erosion of non-doms’ special tax status announced in the Summer Budget encourages many of them to leave the UK.
The total number of UK taxpayers registered as non-domiciled status on their tax returns reached 114,300 in 2013/14 up by 3% from 110,700 the year before.
Over the same period, 5,000 non-doms also paid £223m in the remittance basis charge (non-dom levy) in 2013/14 on their overseas incomes, the same sum collected in 2012/13.
From April 2017, long-term non-dom status will cease to exist and any non-dom taxpayer resident in the UK for 15 or more out of the last 20 years will be deemed domiciled for income tax, capital gains tax (CGT) and inheritance tax (IHT) tax purposes.
For those people, remittance basis of taxation will no longer apply to non-UK income and gains. In addition, all UK residential property owned via an offshore company or other structure will be subject to UK IHT.
In the 2012/13 tax year around a quarter of those claiming non-dom status were doing so for the first time, even though the total number of non-doms had actually fallen by 1,000 compared with the previous year. Pinsent Mason suggests that significant numbers of non-doms may have left the UK during that period.
Fiona Fernie, partner and head of tax investigations at Pinsent Masons, said: ‘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.
£6.6bn
UK-based non doms paid £6.6bn in income tax in 2013/14, up by 7% from £6.18bn in 2012/13
‘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.’
As a law firm with a large share of non-dom clients, Pinsent Masons warns that the increasingly harsh tax regime could force many to review their UK tax arrangements.
‘Changes announced in the Budget have led many non-doms to reassess their position - a large proportion are internationally mobile and will not hesitate to re-locate if a better deal can be found elsewhere. 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,’ added Fernie.