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Living on a prayer

Living on a prayer

Justine Howard, Senior Tax Manager at KPMG LLC, considers HMRC’s recent statistics on non-domiciled taxpayers in the UK and what this might mean for the UK economy

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Senior Manager: Tax

KPMG in the Isle of Man

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UK tax rules changed from 6 April 2017 to treat anyone who has been in the UK for at least 15 of the previous 20 tax years as deemed domiciled for ALL tax purposes. The million dollar question since has been whether this most recent reform will cause affected non-UK domiciliaries (“non-doms”) to leave the UK.

With impeccable timing HMRC has now published statistics on the number of non-doms currently in the UK (that they know of anyway!) and their incomes for the tax years 2007/08 through to 2014/15.  The statistics show that:

  • In 2014/15, non-doms in the UK contributed over £9.2bn in tax receipts (a significant contribution to the UK economy compared with the average taxpayer).
  • The total number of non-doms immediately fell by 11% following the introduction in April 2008  of the “remittance basis” charge, or RBC, requiring long-term non-doms to pay at least £30k per year for claiming non-dom status. This equated to a 15% drop in tax receipts.
  • The total number of non-doms continued to fall a further 8% over the next three years which is most likely due to further tightening of the non-dom rules, especially the “hikes” in the RBC up to a maximum of £90k for those living in the UK for at least 17 of the past 20 tax years.

Although the number of non-doms began to increase steadily with effect from 2012/13, it is not clear from the report how many of these individuals paid the £90k RBC in 2014/15 (and presumably the following two years as well) and as such, will be directly affected by the change in rules.  In other words, how many non-doms will be immediately subject to UK income and capital gains tax on an arising basis with effect from 6 April 2017, having “done” their 15 years?

With this in mind it seems likely that the number of non-doms will fall again in the current tax year or at least gradually over the next few tax years as a result of the new rules.

The UK Government would appear however to be living on a prayer that the loss to the UK economy will be compensated for by an increase in revenue from those non-doms who do decide to stick around.  Whether they stick around indefinitely though is another matter, particularly if they feel they are being constantly being targeted and there is still uncertainty as to what lies ahead.

It’s possible they may just decide to leave for peace of mind, even if their tax liabilities are not largely affected, and perhaps the Isle of Man is just the place to come with easy access to the UK and a favourable tax regime. Could the UK’s loss be the Isle of Man’s gain?

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