This week, the international law firm Pinsent Masons warned that the country could be set to lose billions of pounds as a result of a looming clampdown on so-called “non-doms”.
In a move that is popular with many voters, wealthy people who have lived in Britain for a long time but are “domiciled” elsewhere for tax purposes are to lose the right to shelter their overseas assets from the UK taxman.
Pinsent Masons told The Independent that this could prompt many wealthy individuals, who collectively contribute more than £6.5bn in UK tax a year, to leave the country.
So just who has the right to claim non-com status, are they really avoiding UK taxes, and what are the changes that are coming?
What is a “non-dom”?
Quite simply it is someone who lives in the UK, but who has or will have their permanent base in another country.
As a result of a law that has been in place since 1799 – and which was originally designed to allow Brits from the colonies to avoid paying war taxes, says the BBC – those who qualify have the right to only be taxed in the UK on money they earn or “enjoy”, that is to say spend, here.
It’s all a bit complicated and, The Guardian notes, there are no formal laws, so it’s a case of applying and proving your case to the tax authority.
In essence, anyone can claim to be a non-dom if their father was domiciled in another country at the time of their birth and/or they have a permanent base outside the UK. The BBC says this might be established by owning property or a burial plot elsewhere, for example.
High-profile individuals who are non-domiciled include Chelsea’s Russian billionaire owner Roman Abramovich. In total there are estimated to be around 116,000 non-doms living in the UK.
How much tax do they avoid?
As their worldwide assets are sheltered from UK tax – including inheritance tax – quite a bit. But as the Pinsent Mason figures show, they still pay quite a bit too.
Advocates of the policy argue that by making the UK an attractive place to be based in as a resident, wealthy people earn and spend money here that is heavily taxed and also bring their wider international experience to the economy.
It’s also worth nothing that those claiming non-dom status on the “remittance basis”, which allows overseas assets to be excluded up-front, lose any allowances on income or capital gains taxes.
What is changing?
From April of next year, anyone who has been resident in the UK for 15 out of the past 20 years will be considered to be permanently based here and will lose their non-dom privileges.
Other reforms have been introduced in recent years with annual charges for long-term non-doms that enable them to keep their status. If you’ve been here for seven of the past nine years you need to pay £30,000 a year, rising to £60,000 if you’ve lived here for 12 of the last 14 years.
Another change coming in from next year will mean that non-doms will no longer be excluded from inheritance tax on UK properties owned through offshore trusts.
That’s all pretty popular, right?
Absolutely. There is little sympathy for the super-rich right now and the Labour party has even previously proposed scrapping the whole concept of non-dom exemptions.
The detractors’ arguments are highlighted above and include lost taxation and the almost certain flight overseas of entrepreneurs who bring employment prospects to the UK.
Mark Field, Conservative MP for Cities of London and Westminster, says: “With Brexit on the horizon, the Treasury should give serious consideration to delaying further changes to the non-dom regime until there is clear evidence that overall tax receipts are not harmed.”