The UK's non-dom tax rules are overly complex and everyone would benefit from their simplification, a senior tax lawyer has claimed.
Dan Neidle, founder of Tax Policy Associates, said the concept of domicile was outdated and created opportunities for avoidance.
“The weird concept of domicile is a case law concept which makes it complex and uncertain, and that means it is a pain for taxpayers who just want certainty," he said.
“This also means it creates opportunities for avoidance.”
Case law is law based on precedents rather than a constitution, statutes or regulation, also known as common law.
Neidle said he’s had many conversations with accountants, lawyers, QC’s and consultants and none have said the domicile definition needs to be kept.
“We should scrap it and do something simple and straightforward.”
Many will think that you can’t change [the rules] as they are too complicated, he said, but the complexity of the system makes the non-dom regime essentially uselses for all but the most expensively advised clients.
“Everyone would benefit from having something that was more rational and not based upon a definition that was first set out in 1799.”
Policy changes
In April, shadow chancellor Rachel Reeves announced the Labour party would abolish the non-dom tax status if elected.
She said it simply isn’t right that those at the top can benefit from outdated non-dom tax perks.
“With Labour, people who make the UK their home will contribute to this country by paying tax on their global income.”
Labour said it will also crack down on ‘hidden’ offshore trusts and fast track the publication of the register of overseas beneficial ownership of property in the UK.
The non-dom rules have been under the spotlight recently after it emerged that Ashata Murthy, the wife of Chancellor Rishi Sunak, has claimed non-dom status in the UK for tax purposes.
Claiming that status has saved her millions of pounds in tax on dividend payments from her holdings in Infosys, her family's company.
Murthy has since said she will pay UK tax on her overseas income.
What is a non-dom?
A non-UK domiciled person is someone who does not have the intention to reside permanently or indefinitely in the UK.
Dhana Sabanathan, a partner at Winckworth Sherwood said the UK tax system consists of two bases for taxation for UK residents, worldwide taxation on an arising basis and the remittance basis of taxation which is only available to qualifying non-doms who claim it in their tax return.
"This essentially means that non-doms are taxed only on their UK source income (such as UK employment, UK rental income and UK dividends), and gains (disposal of assets located in the UK)."
New regime
Neidle said the optimal replacement would be to say if you’ve never been resident in the UK before, for your first 2-3 years of residency you get this temporary non-residence regime
“Right now there’s a lot of pressure to change the non dom rules - and we could just do what we’ve done before which is overlay another level of complexity on top of it.
“Let’s not do that.”
However, Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher said in reality the practical impact of the announcement is limited.
“The complexities and interactions of the modern world, coupled with more traditional considerations such as family stability, mean that the remittance basis still has a place in the UK tax system and limiting its scope below the current 15 years risks overlooking the human element in the decision making process.”
He added that it won’t just be the very wealthy who are affected.
“Many more modest individuals are not domiciled in the UK and the automatic remittance basis allows them to leave their savings in their home country without the requirement to certify UK residence, limit the withholding taxes applied on their investments and report the income in the UK.”
Neidle disagreed, saying we’ve had a ‘natural experiment’ in what happens when non-doms are restricted over the last 12 years or so as there have been a number of changes to the policy.
He said while there has been an exodus following the financial crisis and Brexit, there hasn’t been a visible fleeing as a result of any of the changes to the tax itself.
“[Another point is] where would they go? Where would people want to live as much as the UK that gives you benefits as good as the non-dom ratio?
“That’s not an easy question to answer. I don’t think people are solely driven by tax rates.”
sally.hickey@ft.com
