A non-domiciled person (or “non-dom”) is a UK resident whose permanent home, or domicile, is outside of the UK. According to the non-domicile rule, which is valid more than 200 years in the UK, the non-dom individuals must pay UK tax only on their UK earnings, but need not pay UK tax on foreign (offshore) income or gains unless they bring it to the UK. For this benefit, non-doms pay HMRC a “non-dom levy” of between £30,000 and £60,000 per year. In 2018, the revenue from that levy was £315m.
According to the latest HMRC figures, the number of wealthy UK non-doms has decreased to its record low. In 2018, there were 78,300 non-domiciled taxpayers in the UK compared with 98,500 in 2016-17. £9.5bn they paid to the UK budget in 2016/17 fell to £7.5bn in 2018, however non-doms have contributed £45bn in UK tax over the last five years thus making a considerable contribution to UK budget.
What are the reasons behind this sharp drop in number? UK law firm Pinsent Masons says the reason is Brexit uncertainty and nervousness over the chances of a Labour government. Josie Hills, senior tax manager at Pinsent Masons, said: “Non-doms are internationally mobile and if the UK is no longer an attractive place for them, then they can easily relocate.” She added: “The prospect of a Labour government is also very unappealing for high net worths – talk of monetary controls and wealth taxes are not well received. Given that there could be a general election in the near future, many will not be willing to take the risk that this becomes a reality.”
Furthermore, new “deemed domicile” rules, which can draw non-doms fully into the UK tax net, may also have caused the drop in non-dom numbers. Pursuant to such new rule, from 6 April 2017, any non-dom individual who has been resident in the UK in at least 15 of the past 20 tax years (including split years) will have become ‘deemed’ UK domiciled for income, capital gains and inheritance tax (IHT) purposes. In other words, for the first time long term resident non-doms will be taxable on a worldwide basis and will no longer be able to use the remittance basis for future offshore income and gains arising after the date they become deemed domiciled.