The Guardian reported yesterday that:
The number of super-rich people who live in the UK but pay no tax on their offshore income has fallen to a record low, according to figures published by HM Revenue & Customs (HMRC) on Thursday.
UK-based people with non-domicile tax status — so called ‘“non-doms” — in the 2017-18 financial year totalled 78,300, a fall of 13% on the previous year.
Their status led to a £2bn decline in the taxes they paid to the exchequer. The amount of tax they paid fell from £9.5bn in 2016-17 to £7.5bn last year.
Tax experts said the drop in non-doms reflects the growing number of wealthy people leaving the UK because of Brexit uncertainty and fears that a Jeremy Corbyn-led government would introduce a “wealth tax” to tackle growing inequality.
Josie Hills, a senior tax manager at the law firm Pinsent Masons, said: “Brexit uncertainty is driving out many of the wealthiest non-doms who are not prepared to hang around to find out the outcome.
Let me offer an alternative explanation that I think much more likely than this deeply politically driven hype from the firms servicing this declining market.
It costs to be a non-dom. The charge can be as much as £60,000 a year. It increases the longer a person claims to be non-domiciled.
My suggestion is a simple one. The non-doms might not be leaving. Instead I suspect they may just be choosing to pay their taxes in the UK.
Accounting on a remittance basis is a hassle.
The cost is growing for many non-doms as time elapses.
And it is known that HMRC is more willing to challenge non-dom status now.
The result? It's just easier to pay your tax and live hassle-free, I suggest.
That, I think is the reason for the decline in the number of non-doms.
And that helps explain the growing concentration in tax paid by the very wealthy.
I am not saying the non-dom problem has gone away. But I am saying that knee jerk reactions to news about it may not be appropriate. And HMRC may be making progress here.
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Doms….Non-doms. I see what you did there 🙂
Well, all credit to you for recognising that – proving (if proof were needed) that you are just in fact a reasonable person who has been calling out that which is unreasonable.
No need to speculate whether people are leaving the UK or just paying UK tax without claiming non-dom status. The linked HMRC paper itself gives the answer: “The decrease in the number of non-domiciles between 2016-17 and 2017-18 is explained by two reasons. First, individuals switching to domiciled status and continuing to pay tax in the UK. Second, those individuals leaving the UK tax system. These effects are roughly equal.”
Many in the first camp, “switching” domicile status, are not “choosing” to be treated as UK domiciled: they will have become deemed domiciled in the UK from April 2017 when the law changed.
Notably, only 4,700 people in 2016-17 paid the remittance basis charge (a number which is pretty consistent, year on year) at an average of about £60,000 each. The other 86,000 claiming remittance status that year, but not paying for the privilege, must have been here for less than seven years in nine.
These 5,000 people are the 0.01%, and the 86,000 are the 0.15%. Amazing how much effort is expended on chasing relatively little tax revenue from so few people (a billion here, a billion there, and eventually you can reach the £850 billion the government spends each year).
I confess today was a day off with my so
I had remarkably little time to get three blood gs out thus morning…
Thanks
Richard Murphy says:
“I confess today was a day off with my so…….I had remarkably little time to get three blood gs out thus morning…”
Hmmmm…..You need to do less.
Quite deliberately DO LESS.
Get a ‘maid’, or a secretary/PA or whatever…… concentrate on what you are good at, and the parenting which is too precious to delegate. (Ditto self-preservation) We need that. I mean that. Nobody else does what you do.
Anybody could ‘slap’ your trolls and anybody else probably wouldn’t bother because they know where the delete button is on the keyboard. My ex would know how to sort you out…old-school secretary. 🙂
Tax changes can change behaviour.
Non-Dom tax does have some logic to it. A foreign business man who moves here but still has his economic base overseas. Why does the UK deserve to tax those overseas businesses (which are dependent on the infra-structure of that overseas country)?
So the non-Dom tax system was created to restrict UK tax to the overseas income actually remitted to the UK. Fair enough when seen in that context.
The new deemed domicile rules (resident here for at least 15 of last 20 years OR born in UK and have UK as domicile of origin = deemed domicile) mean that many super-rich non-Doms will not be able to keep their non-Dom status and face huge tax bills if they don’t leave. So they are leaving.
I doubt you have no actual experience of advising these super-rich non-Doms. The firms that have been advising them know that they are leaving the UK.
As is noted elsewhere, many are not leaving
Some do
Which is a contribution to reducing wealth inequality in the U.K.
And you assuming you know my career is excellent illustration of how little you know
Hugh Cornwall says:
“Tax changes can change behaviour.” Damn right they do !!! That is what they are for.
“So the non-Dom tax system was created to restrict UK tax to the overseas income actually remitted to the UK. Fair enough when seen in that context.”
Fair comment, Hugh a) If that was the intention (which I doubt) and……
b) It worked (which it doesn’t).
I have had an interest in domicile since training as an Inspector in the Inland Revenue in the 1980s. I investigated wealthy non Dom’s and still defend them having left the Revenue over 20 years ago. The training indicated that when Pitt introduced income tax the non Dom law was a part of it. Not to encourage rich foreigners to come to Britain but to protect the wealth of colonial families who had developed substantial wealth in the colonies but had retained close contact with London and had representation in Parliament. Caribbean sugar barons were mentioned.
I’d like to endorse two things Richard said. Accounting for remittances, including “constructive” remittances is a nightmare and a big area of compliance failure. HMRC have raised their game on the investigation of non Dom status. Andrew is also correct in pointing out the deemed domicile rules biting from 2017 are the chief reason the number of non dons has fallen.
I would suggest it is far more likely that individuals that formerly used “non-dom” status and have now passed the point at which they are automatically deemed as domiciled will be shifting into other tax efficient strategies.
Offshore bonds which allow them to shelter the income and capital gains in a different way without needing to worry about the remittance basis, or possibly Offshore Life Insurance Policies immediately spring to mind and aren’t likely to be challenged.
I see no obvious reason why they would simply pay the tax when these other options are on the table.