Official tax figures are yet to show to full extent of the Labour government’s abolition of the non-dom regime and the subsequent incorporation of global assets into inheritance tax liabilities.
The number of non-dom taxpayers in the UK dipped last year. There were about 73,700 people claiming non-domiciled tax status in the year ending in April last year, 400 fewer than the 2022-23 tax year, or a dip of about 0.5% according to estimates from HM Revenue & Customs (HMRC).
The number of non-doms, according to self-assessment tax returns, stood 3,900 below that in the tax year ending 2020. It indicates a slowdown in the number of people claiming the tax status following a post-pandemic resurgence said Tom Gauterin, private client lawyer at Freeths.
“These figures show that, during the period of uncertainty when the previous Conservative government announced that the non-domicile rules would be reviewed, there was a small drop in the numbers claiming non-dom status. This is likely to have been caused by nervous taxpayers weighing up their options while expecting the policy to be carried through by a newly-elected Labour government.
The reduction in claims for non-dom tax status last year reflects the fact that ‘the writing had been on the wall’ for some time according to Phineas Hirsch, private client Partner, Payne Hicks Beach.
“Both the Tories and Labour had indicated well in advance that the UK was going to reform or abolish the remittance basis of taxation (the beneficial tax regime for non-doms) and political uncertainty drives people away.”
“Sadly, despite what the current government has claimed, its tax reforms are not making Britain competitive or attractive. Not only are fewer of the world’s super rich coming to live in the UK; thousands are actively leaving – relocating to Italy, Switzerland, the UAE and other jurisdictions which have been introducing their own non-dom tax regimes, because they see the value in attracting inbound wealth and spending power.”
Chancellor Rachel Reeves has come under pressure to review the policy following ‘mounting evidence’ the policy is driving the wealthy out of the UK. Estimates vary but research has indicated as many as four in ten non-doms are actively considering leaving the UK for more favourable tax regimes. The Centre for Economics and Business Research (CEBR) has suggested if 25% of non-doms quit the UK, the Treasury would make no extra money from scrapping the tax status negating the government’s efforts to raise funds from the tax; although the warning was ‘highly uncertain’ and based on the behaviour of a small and already highly mobile group of people said The Office for Budget Responsibility (OBR) .
And the full impact of the changes are yet to be seen concludes Gauterin, who said
“In particular, the changes made to the way inheritance tax applies to non-doms (not expected from the Conservatives) have led many to consider leaving the UK. The former blanket exception for ‘excluded property’, particularly that held in trust, has been replaced with a ten-year residence rule following which all property, in trust or otherwise, will be subject to IHT.
“Next year’s figures will show conclusively the extent to which non-doms have acted on their concerns, but in the meantime the Government may wish to consider whether anything can be done to persuade more non-doms to stay.”
