Brexit uncertainty 'driving non-domiciled taxpayers out of UK'

Out-Law News | 19 Aug 2019 | 2:22 pm | 2 min. read

The number of non-domiciled (non-dom) taxpayers in the UK fell 13% to a record low of 78,300 in 2017/18, down from 98,500 the year before, according to new statistics.

Figures released by HM Revenue & Customs (HMRC) showed that the amount of tax directly contributed by non-dom taxpayers also fell 21% to £7.5bn, down from £9.5bn over the same period the previous year. The figure includes total UK income tax, capital gains tax and National Insurance contributions.

Tax law expert Josie Hills of Pinsent Masons, the law firm behind Out-Law, said the continued uncertainty over the manner of the UK’s exit from the EU was driving many wealthy UK residents to leave the country.

“The prospect of a Labour government is also very unappealing for high net worths - talk of monetary controls and wealth taxes are not well received. Given that there could be a general election in the near future, many will not be willing to take the risk that this becomes a reality,” Hills said.

“Non-doms make a huge contribution to HM Treasury’s coffers; this small group has contributed £45bn in tax over the last five years. The impacts of falling tax receipts from non-doms may only be felt once it’s too late,” Hills said.

The concept of domicile links individuals to a particular territory as their ‘permanent home’ for the purpose of determining how tax law applies to them. Measures introduced in recent years have made it harder for individuals to claim to be non-UK domiciled, especially when they have been resident in the UK for a significant number of years.

In April 2017 the UK government introduced new rules, under which an individual who has been UK resident for 15 out of the last 20 years may be deemed to be domiciled in the UK for income tax, capital gains tax and inheritance tax purposes. Those who are deemed to be UK domiciled will not be able to access the favourable remittance basis of taxation, whereby income and gains which are not brought into the UK are not subject to UK tax. A deemed domiciled individual will be subject to UK inheritance tax on their worldwide assets.

“The new ‘deemed domicile’ rules, which can draw non-doms fully into the UK tax net if simple conditions are met, may have also contributed to the drop in numbers. Non-doms are internationally mobile and if the UK is no longer an attractive place for them, then they can easily relocate,” Hills said.

The revenue from the ‘non-dom levy’, or Remittance Basis Charge, was £315m last year, compared to overall tax revenues from non-doms of £7.5bn. This annual charge can vary between £30,000 and£60,000 depending on how long the individual has been a UK resident.

Hills said the charge was another reason why non-doms could be leaving the UK.

“We have also heard complaints over the complexity of the remittance rules, which determines what a non-dom pays tax on. Add an annual charge on top of this complexity and its hardly surprising non-doms start looking elsewhere,” she said.