In 2017 rules took effect that meant people could not be deemed permanently non-domiciled in the UK for tax purposes. Along with other measures, this has cut the number of people with that status. Figures show that revenues raised from this source have fallen. Wealth industry figures react.

Recent figures showed that the number of non-domiciled residents in the UK stabilised in the tax year ending in 2020 but they paid less revenue into public coffers, suggesting that pressure on this category of individual has hit revenues, as defenders of the non-dom system had predicted.

Official figures issued by the government said that it estimated there were 75,700 individuals classed as non-doms, based on their tax returns, falling from 78,600 in the previous year. The government said revisions could show this drop is less severe, however.

After rules about the “remittance basis” were tightened in 2017 – the numbers of self-declared non-doms has fallen. From 6 April 2017, a person is taxed on the arising basis on his/her worldwide income and gains if they were born in the UK and have a UK domicile of origin and were resident in the UK for at least 15 of the 20 tax years immediately before the relevant tax year.

“We estimate that non-domiciled taxpayers are liable to pay £7.853 billion ($10.9 billion) in UK Income Tax, Capital Gains Tax (CGT) and National Insurance contributions (NICs) in the tax year ending 2020. We currently see a decrease from the previous year’s figure of £7.898 billion, but if the current year’s figure is revised in the future (due to late submission of tax returns) the difference may reduce further,” the government said. 

Richard Bull, private clients partner at Crowe, said of the numbers: “The figures do not include those now ‘deemed domicile’ which would make a difference….Business Investment Relief continues to be a valuable relief and way of attracting inward investment in the UK via non-doms who are UK residents. In 2020, 500 people invested £1.031 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.”

Inheritance
Separately, figures for the 2020/21 financial year showed that revenue generated from inheritance tax last year amounted to £5.4 billion, up 4 per cent on the previous year.

“The number of deaths affected by inheritance tax has actually fallen. This reduction is due to the introduction of the Residence Nil Rate Band in 2017 which allows many families to pass on their family home inheritance tax-free,” Alex Davies, chief executive of Wealth Club, said. (The “nil rate” band is the threshold above which IHT is payable. The matter is controversial because property prices have risen in recent years, while the IHT nil rate band has often remained unchanged for years.)

“In short, more inheritance tax is being raised but it is being paid by fewer people. For the estates affected, the rise (albeit a small one) is a kick in the teeth. The idea that you work hard, save hard and pay taxes all through your life only to see nearly half of what you have accumulated be taken again by the state can be unpalatable,” Davies said. 

Crowe’s Bull said: “IHT is often looked at as a tax for the government to change in order to increase tax revenues to pay down COVID borrowings. The tax remains very emotive for the majority of people and the detailed statistics released today show that in 2018/19 there were fewer estates paying IHT but the total paid by those estates increased. In 2018/19 22,100 estates paid IHT, down 9 per cent (2,100) on the previous year.

“When considering changes, attention is often focussed on the various reliefs available and whether they deliver the results intended. Spouse exemption is a valuable relief as it allows one spouse to leave their wealth to a surviving spouse free of IHT. In 2018/19 wealth totalling £13.8 billion was sheltered from a 40 per cent tax charge by the exemption. Whilst this has been a cornerstone of the UK’s IHT regime for a long time, limiting the allowance would be one easy way of increasing tax receipts but would not be popular with the electorate. Given that marriage rates are falling, will this relief continue to be as popular and is it right to offer such an advantage to married couples when societal norms are evolving?” he said.