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Non-dom numbers stabilise as ‘political hot potato’ falls off radar

Katie Royals, 30/07/2021

The “political hot potato” of non-doms have largely fallen off the radar of politicians. This is partly because over the previous three years, the number of non-domiciled taxpayers has stabilised at a lower level.

This is because a significant number have either become domiciled or are no longer paying tax in the UK.

In the tax year ending 2020, HMRC estimates that 75,700 individuals claimed non-domiciled taxpayer status in the UK on their Self Assessment (SA) tax returns, down from 78,600 in the previous year.

However, Rosie Hooper, a chartered financial planner at Quilter, believes the non-dom reforms have been “a bit of a damp squib”.

She explained: “Rather than increasing the tax take, the number of non-doms has collapsed by 58 percent since 2015/16 and the tax take for non-domiciles has reduced.

“Given the rate of decline in the number of non-doms has largely stalled, only falling under 4 percent between 2018/19 and 2019/20, it seems the number of non-doms is now stabilising at a permanently lower level.”

HMRC estimates non-doms are liable to pay £7.85 billion in UK Income Tax, Capital Gains Tax (CGT) and National Insurance contributions (NICs) in the tax year ending 2020.

This is a marginal fall from last year’s £7.89 billion.

Additionally, after a fall in 2018 of UK business investments by non-doms, these recovered to reach a new peak of over £1 billion.

In 2020 500 people invested £1.03 billion in qualifying UK businesses an increase of £155 million on the previous year.

“Whilst Brexit may have increased the number of barriers for UK businesses with the EU, non-doms have not been put off from investing more of their wealth into the UK with the benefits for the wider society this can bring,” Richard Bull, a private clients partner at accountancy firm Crowe, noted.

Mike Hodges, a partner and head of the private wealth team at accountancy firm Saffery Champness, agreed, stating: “This is a timely reminder of the value which this comparatively small community delivers to the economy and one which the government will likely take heed of as it considers future reforms.”

Mr Hodges argued there are “more immediate concerns” for many non-doms, beyond hypothetical future tax rises.

The incoming requirements under Making Tax Digital due to take effect in 2023 will impact not just taxpayers with UK income but also UK residents with income from overseas.

Currently UK-resident non-doms are required to report income derived from overseas which may not be liable for tax and which may not be remitted.

Mr Hodges explained: “MTD, which is an important and understandable part of the government’s attempt to continue to address the persisting tax gap, will require more frequent reporting and potentially lead to both administrative headaches and potentially baseless enquiries about taxes which were never in fact due.

“Non-doms will likely need to start planning now to prepare for an ever more digitally-enabled and data-led HMRC and ensure they and their business interests are set up to manage the new requirements,” Mr Hodges concluded.

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