From the statistics, it can be surmised that, despite uncertainty and the prospect of significant changes, the UK remains an attractive place for individuals to work and live, writes Tom Elliott
In early August, HM Revenue & Customs (HMRC) released their latest statistics regarding the number of UK taxpayers claiming to be non-domiciled (non-dom) for the financial year 2017-2018, with headlines reporting a dramatic drop in numbers from the previous year.
The current climate
While the British media has been focused on Brexit and the possible short-term economic challenges, the reality for those claiming non-dom treatment is that they may be largely insulated from the negative economic effects of a no-deal exit.
That said, there can be little doubt that the UK is perceived to be less welcoming than prior to the 2016 referendum; not only in terms of the result of the vote and Theresa May’s well documented ‘hostile environment’ but, also for the UK’s non-dom community, increased scrutiny from HMRC. We are seeing a higher number of HMRC enquiries on non-dom tax returns and those enquiries are significantly more thorough and intrusive.
In addition, the political fall-out from the government’s handling of Brexit continues to cause uncertainty for clients. A possible general election and the prospect of a Corbyn/McDonnell partnership in Downing Street are giving some clients food for thought.
It is also worth noting that the UK is not the only jurisdiction in the midst of political uncertainty; a number of our non-dom clients left their country of origin because of worries regarding the changing politics at home and the prospect of increased taxation of wealth.
The initial reaction to the latest statistics has focused on the number of non-doms who have left the UK, with the 2016 Brexit vote, lack of certainty surrounding the implementation of this, recent changes to the taxation of non-doms and the prospect of a change in government, all cited as possible causes. As I write this in mid-August, having read Met Office warnings for a month’s worth of rainfall in 24 hours, one wonders whether the British weather could now also be highlighted as a contributing factor.
For the financial year 2016-17, 75,900 individuals claimed nom-dom status. One year on and this has dropped to 64,100 (a reduction of 15.5 per cent). When viewed in isolation, this reduction looks worrying. However, a closer analysis of both the data released by HMRC and the accompanying commentary reveals a different and far more positive picture.
The HMRC commentary states:
- the reduction in the number of individuals claiming non-dom status is due to two factors; those who left the UK and those who became UK-dom as a result of changes in tax law
- the number of new non-doms (i.e. new arrivals to the UK) exceeded the numbers leaving.
So, on the basis that arrivals and departures resulted in a small net increase in non-dom numbers, then the reduction of almost 12,000 for the year would appear to be the result of individuals no longer being entitled to claim non-dom status.
Considering that new rules came into effect for 2017/18, which removed the ability for any individuals who had been in the UK for more than 15 years to claim non-dom status, the reduction is not at all surprising.
Potentially more worrying than the apparent loss of taxpayers is the 20% reduction in the amount paid to HMRC by the non-dom community. Again, looking at HMRC’s commentary, the reality is somewhat different.
The commentary reveals that, despite the decrease in the number of non-dom taxpayers, there has not been a fall in taxes paid. In fact, the total tax received for 2017/18 from non-doms, when added to the amounts paid by those who became UK-dom as a result of the rule changes, exceeded the previous year’s receipts.
Despite the headlines, the data paints a far more positive picture of the international non-dom community in the UK who are remaining resilient and less sensitive to tax change.
More non-doms entered the UK than left and most of those that did exit, did so by becoming UK-dom and paying tax differently. It is important to note that non-doms, by definition, are not permanent residents of the UK and can be expected to return to their country of residence, so this movement is neither unusual nor concerning.
From the statistics, it can be surmised that, despite uncertainty and the prospect of significant changes, the UK remains an attractive place for individuals to work and live.
Tom Elliott is a partner and head of private clients at national audit, tax, advisory and risk firm, Crowe.