A lot of political noise has been made in recent months about the non-dom regime and that if elected, Labour will abolish the non-dom regime, say RSM's Rachel de Souza and Sharlene Rowley.
The Labour party have previously referred to a report published by Warwick University in September 2022 which concluded that abolishing the non-dom regime (or more precisely, the remittance basis) would raise an additional £3.2bn for the government in income tax and capital gains tax. To meet this target, policy changes would need to bring at least £7.1bn of overseas income or £11.4bn of overseas gains into the UK tax net.
HMRC published its annual statistics on non-domiciled taxpayers this week. According to these figures, only 55,200 UK residents claimed to be non-dom in 2022, representing 0.08% of the UK population as estimated by the Office of National Statistics. Moreover, there has been a long-term downward trend in the number of non-doms claiming the remittance basis since 2017. Despite this, HMRC's statistics report tax revenues of £12.4bn from self-assessment taxes alone in 2021/22 from non-domiciled and deemed domiciled taxpayers.
Only 37,000 of those non-doms claimed the remittance basis in 2021, and just 2,100 paid the remittance basis charge ("RBC"). A remittance basis user must pay an RBC of either £30,000 or £60,000, depending on the length of their residence, unless they have been UK resident for less than seven years or they have less than £2,000 of overseas income and gains in the year.
Of the 2,100 non-doms paying the RBC, 1,600 paid £30,000 and just 500 paid £60,000. An individual needs to have overseas income of at least £66,667 or capital gains of at least £107,143 to warrant paying the £30,000 charge. If they are liable to the £60,000 charge, they would need to have overseas income of at least £133,335 or gains of at least £214,286 for a claim to be worth it. It is abundantly clear from HMRC's statistics that the vast majority of non-doms living in the UK do not have significant wealth overseas as it is not beneficial for them to pay the £30,000 RBC.
This tells us that Labour will be relying on a very small number of non-doms to pay significantly more in tax to make up the £3.2bn that they expect to raise from changing the rules related to non-doms. To give some context, if we focus on the 500 wealthiest non-doms, each of those would have to pay additional taxes of £6.4m each in order to generate the additional £3.2bn in taxes.
The Warwick University report assumes that few non-doms will leave the UK; that may well be true, but those who do leave are more likely to be in this group of the 500 wealthiest, as they generally already have homes in other jurisdictions and of course, have the most to lose by staying. If they do stay, they still have the option to restructure their wealth to mitigate against paying tax on their worldwide income and gains.
To throw another spanner in the works, the Warwick University report also states that should the existing rules be maintained but limited to five years, the additional tax generated will be reduced by half to £1.6bn. Labour have already said that they will replace the current system with something more modern for a period of five years and so the £1.6bn figure is more realistic than the £3.2bn figure that has been quoted.
In summary, the government's statistics show that very few people benefit in any meaningful way from the non-dom regime and those that do are significantly wealthy. There are very good reasons why abolishing the remittance basis will not generate significant amounts of extra revenue. Those looking to leave are spoilt for choice with Portugal, Italy and Spain only a few of the nearby countries offering beneficial tax regimes to expats. With this in mind, the policy changes could result in much lower additional revenue being generated, perhaps closer to £1bn, leaving a £2bn black hole in Labour's spending plans.
By RSM's Rachel de Souza and Sharlene Rowley.