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July 9, 2024

More non-doms call UK home – but for how long?

The number of non-doms increased in the year leading up to the general election, new HMRC figures reveal

By Stephanie Bridger-Linning

The number of non-doms living in the UK increased year-on-year, according to figures released today by HMRC.

The number of high-net-worth residents benefiting from the scheme rose to 74,000 during the tax year ending April 2023, up by 7.4 per cent from 68,900 in the previous 12 months, provisional data reveals. The number of newly-arrived non-doms also increased – up by 18 per cent to 12,900. 

[See also: What does Labour’s landslide victory mean for (U)HNWs?]

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Non-doms are also contributing more to the public purse: they paid £8.9 billion in taxes in the tax year ending 2023, up 6 per cent, or £474 million, from the previous year. 

Under existing rules, internationally-mobile UHNWs who claim non-dom status are exempted from paying tax on foreign earnings for up to 15 years as long as the assets are not brought into the UK. Eventually they face annual costs of as much as £60,000. 

However, seismic changes are expected under the new Labour government, which swept into power last week on a platform that promised to ‘close tax loopholes’ – including those perceived in the non-dom regime – in a bid to raise public funds for frontline services.

[See also: Labour risks ‘spooking’ HNWs with non-dom pledge]

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The topic had become a popular talking point in the months leading up to the election, with the Conservative government also announcing an overhaul of the regime ahead of the vote on 4 July.

[See also: Scrapping the non-dom regime: Hunt must proceed with caution]

Chancellor Rachel Reeves has previously indicated that Labour’s policy would go further and include a shorter four-year ‘grace period’, as well as an elimination of inheritance tax breaks on assets held in overseas trusts.

Warning from HNW advisers

Tax advisers and lawyers in the Spear’s network have warned that such an aggressive policy could lead to an exodus of high-net-worth individuals. Some have reported HNWs already making enquiries about alternative jurisdictions. 

[See also: The best accountants and tax advisers for high-net-worth individuals in the UK]

‘For those of us with boots on the ground we are already dealing with queries around how and when to leave if the non-dom proposals come in as presently promulgated,’ said Helen McGhee, a Spear’s Top Recommended tax lawyer and partner at Joseph Hage Aaronson LLP.

‘A four-year grace period upon arrival is not long enough in terms of making the UK a globally competitive jurisdiction for the wealthy internationally mobile, and moreover a raid on existing trust structures with little lead in time and a disturbingly long IHT tail will be the final straw for many. Any exodus will have a serious impact on the prosperity of the City which has already been hit hard with Brexit.’

Robert Brodrick, of Payne Hicks Beach (left) and Helen McGhee of Joseph Hage Aaronson LLP are among the advisers who have warned of an HNW exodus

Speaking on the day of the election results, Robert Brodrick, a leading tax adviser at Payne Hicks Beach, added: ‘International clients have been left in a “do-I, don’t-I” vacuum, trying to make decisions without knowing whether the changes that have been announced will actually become law, and if so, when this will happen.’

[See also: The best tax lawyers for high-net-worth individuals]

Given the policy confusion, many of Brodrick’s clients are already mulling over plans to move. He continued: ‘Earlier this week, I was speaking to someone whose family has been in the top 10 of the Sunday Times Rich List for many years. They are also non-domiciled.  This is a family that contribute to the UK economy in a significant way and they are having to weigh up whether to stay or whether to go.

[See also: G.P. Hinduja tops Sunday Times Rich List as billionaire numbers fall]

‘All their friends are leaving or have already left. In the early hours of this morning when the election result had become clear, I was contacted by another UHNW client (also non-domiciled) to confirm that he is definitely moving to Italy.’

HMRC figures show the number of non-doms has recovered from its pandemic low of 68,700 in the 2020-21 tax year but has yet to return to its pre-pandemic levels of 79,800 in 2018-19. 

The number of non-doms has been in decline, dropping by almost 50 per cent in the 10 years to 2022. This is partly due to new changes introduced in 2017 which categorised those living in the UK for 15 of the past 20 years as ‘deemed domiciled’, at which point they have to pay UK tax on their global income, as other UK-domiciled taxpayers do.

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