Number of Non-Doms Continues to Slump

The number of UK taxpayers registered with HMRC as non-domiciled (non-doms) has fallen by a further 2,000 in one year as the impact of the £30,000 annual non-dom levy continues to bite, says Pinsent Masons, the international law firm.

Pinsent Masons says the number of non-doms in the UK has tumbled by 17% from 140,000 to 116,000 since the levy was introduced in 2008.

Jason Collins, Head of Tax at Pinsent Masons, says: “The UK’s tax code is seen as becoming increasingly hostile to High Net Worths, especially those from overseas. 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.”

“The non-dom 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.”

The £30,000 annual levy applies to all non-doms that have been in the UK for between seven and twelve years. From April 2012, the levy for non-doms in the UK for twelve or more years has been £50,000. Non-doms can opt out of the levy if they agree to pay UK tax on their worldwide income and gains instead.

Jason Collins adds: “Non doms are more important to the UK economy now than 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.”

“Policy on attracting High Net Worths to the UK is 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.”

Pinsent Masons adds that only a fraction of UK non-doms actually pay the annual charge, with the rest opting to pay income tax on their global earnings. 4.8% of non-domiciles paid the levy in last year, generating just £168m for the Treasury.

Jason Collins says: “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. Less than 5% of non-doms have paid the levy each year since it has been used.”

Pinsent Masons also adds that the annual levy is having an impact on the type of non-doms that are in the UK.

Jason Collins comments: “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. They’re being forced to make investments that have much less of a positive knock-on effect for others.”