Experts Say Decline Is Most Likely Due To ‘Deemed Domicile’ Rule
New HMRC stats show over 12,000 individuals have given up their non-domiciled tax status in the UK, with experts saying Brexit isn’t to blame.
In 2017-18 there were 78,300 individuals claiming non-domiciled tax status, down from 90,500 in the previous year. The decline has therefore resulted in a £1.95 billion loss in tax contributions from non-doms.
Non-domiciled status allows foreign individuals to avoid paying tax on any non-UK income by stating their domicile as somewhere other than the UK. In return they pay up to £60,000 per year to the UK government.
HMRC says the reason why the decline has been so steep is because of individuals either switching to domiciled status within the UK or leaving the UK tax system in equal measure.
While some have suggested the decline is related to Brexit, experts at leading national law firm Irwin Mitchell say the decline is due to the ‘deemed domicile’ rule introduced in 2015.
Alex Ruffel, a Tax, Trust & Estates partner specialising in international tax said: "The statistics published by HMRC show a drop over the last two years in both the number of people claiming to be non-UK domiciled and in the amount of tax non-doms who live in the UK pay.
"We cannot be sure exactly what has driven this, but it's likely to be a mainly a combination of two factors. The first is a new 'deemed domicile' rule that means long-term UK residents are treated for tax as if they aren't non-doms, and so drop out of the non-dom figures even if they continue to live in the UK. The second is departures of non-doms from the UK.
"In our experience, while some long-term residents have left the UK, this has been driven by the new deemed domicile rule and not by Brexit or political changes.
"Most people who take advantage of their non-dom status will have wealth abroad that insulates them from UK issues to some extent and they can afford to wait and see what will happen after October 2019.
"The effect of Brexit on the non-dom figures is probably indirect in that it has increased the rate of natural wastage – as non-doms retire back home, pass away or leave the UK for new jobs, they aren't being replaced by new arrivals at the same rate as in the past because of uncertainty about the future of the UK."
Published: September 2019
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