The number of UK resident non-domiciled taxpayers and the tax they are paying has fallen by a record amount in the past year, according to HMRC.
There were an estimated 78,300 people claiming non-domiciled taxpayer status in the UK on their Self-Assessment tax returns in 2017-18, which fell from 90,500 the previous year, which represents a fall of 13.5%.
The number of those resident in the UK fell by 16%, from 75,900 in 2016-17 to 64,100 in 2017-18.
In 2017-18, the amount of UK Income Tax, Capital Gains Tax and National Insurance contributions paid by non-domiciled taxpayers fell by 21% – from £9.5bn in 2016-17 to £7.5bn in 2017-18.
While HMRC are claiming this represents success based on people giving up their non-domiciled status to become domiciled yet resulting in no loss of revenue for the Exchequer, commentators have said that it also shows foreigners are being dissuaded to come to the UK.
Aaron Widdows, partner at Price Bailey, comments: “While some people have opted to pay tax on their worldwide income and gains, it is likely that tax hikes aimed at non-domiciled taxpayers have dissuaded many from coming to the UK in the first place.
“Even though HMRC may not have lost revenue, it might have brought in even more revenue if higher taxes have scared off wealthy foreigners.”
In addition to the price hikes, the current uncertainty surrounding the political and economic climate in the UK is also likely to have been a factor in the decreasing numbers, making the UK a less attractive place for foreigners to move to.
“Brexit could to be a factor in discouraging non-doms from settling in the UK and prompting some to leave. These people are very geographically mobile,” said Widdows. “It is likely that many non-doms will have looked at the political and economic uncertainty in the UK and decided that they are better off elsewhere.
“Non-doms invest large sums of money in the UK and create thousands of jobs and we should be encouraging inward investment into post-Brexit UK.”
The rules for deemed domicile took effect from 6 April 2017, and this is likely why many people may have declared themselves as UK domicile from 2017/18.
During 2015-16 and 2016-17 it was possible to pay the remittance basis charge of £90,000, but it is not impossible to pay that charge due to the 15-year rule, which could be the reason for a drop in tax take as well.
Widdows added: “The rules for the remittance basis of tax are quite complex. People often assume that a remittance is simply a transfer of funds from an offshore bank account but purchasing assets in the UK using money from an overseas bank account also counts as a remittance.
“There are all sorts of ways non-doms could be liable for tax charges. The complexity of the rules and the higher remittance basis charge will have persuaded many to have become domiciled, leave the country or not bother coming in the first place.”
Benefits of non-domiciled taxpayers
Roger Gherson, partner and founder at immigration specialists Gherson Solicitors said that the non-dom rules changed under ex-chancellor Geroge Osborne should be reversed, and that having non-doms in the country is of great benefit to the economy.
Gherson said: “If the truth be told, non-doms pay an enormous amount of tax. They tend to send their children to private schools and use private medicine. This is criticised but it’s a benefit to the taxpayer as they don’t tend to use up valuable resources paid for by their tax – leaving it open to others.
“The madness of the changes to the non-dom rules should be reversed. Even then, it will take a long time to regain confidence in London. At a time when there is uncertainty in the world: Hong Kong, the Middle East , Africa etc… the non-dom rules can attract much needed entrepreneurial capital that is required in order to get through the next few years; whether the UK leaves the EU or not.
“It is clear the EU economies are flat lining and Germany is tipping into recession. The UK is a unique country, a unique environment for business, and much respected throughout the world. Since the UK tightened its rules on non-doms the likes of Portugal, Spain, Cyprus , and Malta have all moved quickly into this market and successfully attracted billions which left here.
“Don’t let it be the case that yet another clever British invention is sacrificed by a lack of care. Positivity is good: look at the enormous benefit provided by non-doms. Don’t squander the opportunity but look at the numbers and not the political spin and fabrication. The last few years have clearly demonstrated, as far as the politicians go, who’s interests comes first.”