UK could lose billions by making wealthy non-doms pay more tax, experts claim
Current rules allow over 100,000 wealthy residents to pay a lower rate of tax, even if they have lived in UK for many years.
The Government is risking more than £6bn of tax revenue by changing rules governing non-domiciled taxpayers, an international law firm has warned.
Pinsent Masons said that proposals to scrap non-dom tax status for people living in the UK long-term, due to come into force in April 2017, could prompt many wealthy residents to leave.
Non-dom status applies mostly to wealthy foreign individuals who reside in the UK but have their “primary residence” in another country. It allows them to only pay tax here on UK earnings rather than all of their earnings, in effect giving them a significantly lower tax rate than UK-domiciled individuals.
High-profile individuals such as billionaire Chelsea FC owner Roman Abramovich and Tory party donor Lord Ashcroft have benefited from the rules. Lord Ashcroft, who was born in Chichester, West Sussex, gave up his status in 2010, as new requirements for MPs and Lords to be resident in the UK for tax purposes were introduced.
Fiona Fernie, partner and head of tax investigations at Pinsent Masons, said: “Non-doms make a highly valuable contribution to the UK economy and any substantial exodus could have serious long-term impacts.
“Policymakers need to consider what they might lose by placing the status under threat.”
“The availability of non-dom status awards the UK a real competitive advantage when it comes to attracting wealthy and talented individuals.
“Removing or altering it now, especially in the wake of uncertainty generated by Brexit, will mean many look seriously at relocating.”
Non-dom taxpayers contributed £6.57bn in income tax in 2014-15, averaging out at £56,589 per person compared with the £5,152 collected from regular residents.
“As a group, non-doms pay billions in tax and bring huge combined spending power, skills and valuable connections to the UK.
“Many are highly successful entrepreneurs and businesspeople, meaning they establish or invest in UK-based companies, thereby creating thousands of jobs,” Ms Fernie added.
It is estimated that 116,100 people in the UK currently qualify as non-dom taxpayers.
The new proposals would only scrap non-dom tax status for people who have lived in the UK for at least 15 out of the past 20 years, who would have to pay the same rates of income tax, capital gains tax and inheritance tax applicable to everyone else. In 2015, Labour proposed scrapping non-dom status completely.
Cities of London and Westminster MP Mark Field defended the current regime and called for the Government to reconsider its plans. “With Brexit on the horizon, the Treasury should give serious consideration to delaying further changes to the non-dom regime until there is clear evidence that overall tax receipts are not harmed,” he said.
Any UK residential property owned via an offshore company would also be subject to UK inheritance tax.
A Treasury spokesman said: “The UK is open for business and we will remain a top destination for talented people who want to invest and create jobs in this country.
“It is only fair that those who choose to live in the UK for a very long time pay their fair share of tax to help fund the public services we all rely on.”
