The debate about non-doms is more political point scoring than prudent tax policy says Sophie Dworetzsky
The first major skirmish on the election campaign battleground followed the announcement last week by Ed Miliband that a Labour government would revoke the rules allowing non-doms to use the remittance basis of taxation in the UK. The Conservative party responded to this political and economic bombshell by suggesting that the abolition of the right to assume non-dom status by hereditary means alone would be a sufficient measure to clear up any sense of privilege associated with non-doms.
The rhetoric continues unabated, with both sides of the debate attempting to lay claim to a ‘fairer’ position on taxation. I would argue that a fairer society is not possible without the money to spend on things which make society fairer and, should this policy come into force, there is little doubt that a significant number of resident non-doms would leave the UK, and many potential non-doms would be discouraged from coming to the UK.
A significant annual tax take would be lost, as well as the contribution non-doms make though spending on employment, services and general consumption, and it is hard to see from this how making the UK less attractive to non-doms is either sensible policy-making or will have a positive impact on social justice.
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Perhaps it is worthwhile taking a step back from the debate and asking why a series of technical tax rules have become a key electoral issue.
As Mr Miliband pointed out, the remittance basis of taxation dates back two centuries to colonial times. It is based on the concept of domicile and, in a rather old fashioned way, draws this in most cases from the home jurisdiction of an individual’s father. Living in the UK as a foreign domiciled individual can lead to significant tax benefits, and it is also possible to be born in the UK and become domiciled somewhere else. However, this requires very strong evidence – certainly more than has been suggested in recent comments.
The remittance basis means you are fully taxed on everything you earn in, and bring to, the UK, just as any other UK resident is and it is a struggle to see how this position can be characterised as unfair. The only difference for a non-dom is that they are not taxed on overseas monies which are not brought into the UK, though they may of course be taxed on them in other jurisdictions.
Since 2008, using the remittance basis of taxation has also come with an additional cost for any resident non-doms who have been in the UK for more than seven years. This starts as an annual charge of ’30,000, increasing to ’60,000 after twelve years and to ’90,000 after seventeen years. The charge has been estimated to have provided HMRC with ’300 million for the 2013/14 tax year alone, and it has been calculated that the 115,000 non-doms in the UK each paid a further ’72,000 in other taxes on average in the same period.
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In total, HMRC received around ’8 billion from resident non-doms for the most recent year from which statistics are available. This can hardly be said to be a tax-free position and the contention surrounding the issue is being fed by misunderstanding, misinformation and a political desire to score points.
What happens next depends of course on the outcome of the election, but it is likely that the next government will review the non-dom rules, irrespective of its make-up. It would be premature to take drastic measures now, as the scale of change cannot be predicted with any certainty. We must hope that any reviews are done in a measured fashion, with an eye to properly analysing the contribution made by non-doms.
Sophie Dworetzsky is a partner at Withers
