Reforms to the tax rules for non-doms could reduce tax revenue if more than two-fifths of those affected decide to leave the UK according to a new report commissioned by Irwin Mitchell Private Wealth.
The report on Reforms to the Taxation on Non-doms produced for Irwin Mitchell Private Wealth by the Centre for Economic and Business Research (Cebr) analyses the latest statistics and research available in relation to the numbers of non-doms and the tax contributions they make.*
With the tax rules for non-doms changing on 6 April 2017, the report sets out possible scenarios if individuals who have been here for 15 of the past 20 years decide to leave the UK.
The report finds that there have been a growing number of individuals claiming non-dom status in recent years with 122,708 registered in 2016-17. However, the number of people claiming non-dom status is predicted to fall sharply (12% in 2017-18) following the implementation of new reforms.
The report also highlights that the 119,260 individuals who claimed non-dom status in 2014-15 generated income and capital gains tax of £6.9 billion, accounting for roughly 4% of total income and capital gains tax receipts received by the UK government.
The Office for Budget Responsibility projects that the changes to non-dom taxation will generate an additional £995m over the next four years. If there are significant departures of non-doms from the UK, for the OBR’s target to be met, there will have to be a significant increase in arrivals of non-doms to the UK or individuals who lose their non-dom status but remain UK resident will have to generate £2.6 billion in tax revenues until the tax year 2020-21. This equals around £256,411 per individual per year.
The Irwin Mitchell report calculates that if fewer than 38% of those individuals who currently use the remittance basis but will lose their non-dom status leave the UK, the net revenue impact of the changes will be positive. However, if more than 38% leave, the changes could have a negative effect.
Alex Ruffel, a tax partner at Irwin Mitchell Private Wealth said:
“The report is clear that non-doms make a valuable contribution to the treasury’s income, some £6.9bn in 2014-15. It takes 2.1 million average UK earners to generate the same amount of tax as 119,260 non-doms.
“What the research shows is that there is a tipping point at which the UK economy will benefit from the changes: the OBR prediction is that they will increase tax revenue but there is an element of uncertainty – if they lead significant numbers of current or former non-doms to leave the UK or discourage others from coming, the net revenue impact will be negative.
“It remains to be seen how many of those affected will decide to remain in the UK. With the possibility of Brexit negotiations affecting other areas of their life in the next few years it is difficult to predict the course of action they will take.”
Find out more by downloading the factsheet
Read the report on reforms to the taxation of non-doms