Earlier this month, HM Revenue and Customs published its annual statistics on the number of people claiming non-dom status in the UK and the size of their tax contribution.
In 2017-18, the number of non-doms fell 13 per cent to the lowest point in the last decade, while tax receipts from non-doms have also fallen from £9.5bn to £7.5bn.
There are a number of ways to interpret these figures, nervousness around Brexit and the potential for a change of government could be some of the reasons for what appears to be an exodus from the UK.
However, the drop does not yet indicate a radical departure of the wealthy from the UK and is perhaps not as impactful to the exchequer as it may first appear.
A large proportion of the fall in numbers is made up of those individuals who are now ‘deemed domiciled’ for tax purposes and therefore under rules introduced April 2017, pay tax on a worldwide basis.
As these individuals are no longer identified as non-doms, their tax revenue is not counted in these statistics, but is still paid to the exchequer.
Not counting the individuals that will now be considered as “deemed domiciled”, the fall is still considerable, and there are factors which we can point to as likely drivers of the trend.
The statistics make particularly interesting reading as they are the first to be released since the most recent government non-dom reforms.
Having come into effect in April 2017, these reforms may have started to bite, impacting the number of people claiming non-dom status, with many no longer able to benefit from non-dom treatment and so would have dropped out of the figures.
In particular, the remittance basis changes must shoulder some of the responsibility.
Since the reforms, individuals will become deemed domiciled automatically if they have been resident in the UK for fifteen of the last twenty tax years.
As such, they are not able to utilize the remittance basis, and therefore, are taxed on foreign income and gains as they arise.
Until that point, individuals have to pay up to £60,000 a year, depending on the length of time they have had in the UK, to access the remittance basis.
This ongoing annual charge may be starting to influence individuals away from using the remittance basis.
Policies of this nature can undermine confidence in the soundness and security of the UK’s non-dom status.
These figures would suggest that some individuals have made the decision to leave the UK tax system.
The effects on the tax take, according to HMRC, have been roughly equal to that of the non-doms switching to domiciled status.
However, that is not to mention the impact of domestic tax policy changes such as inheritance tax, stamp duty and capital gains tax that has on tax take.
It may not be until we have numbers for 2018/19 that we see the full extent of any Brexit effect, given that the final outcome of the negotiations is still unknown.
More broadly, the economic contribution – in addition to the tax revenue generated - of non-doms should not be underestimated.
Business Investment Relief has risen to its highest level, arguably demonstrating continued appetite to invest in the UK, despite the ongoing geo-political uncertainty.
It will be interesting to see whether the new chancellor will expand this relief, and others like it, to encourage further international investment in the UK post-Brexit.
Going forward, whether these stats will prove to be a bellwether for the fate of the UK’s non-doms as we undergo the forthcoming politic transformation is still unclear - be that a no-deal Brexit or a change in government.
What is clear however, is that the UK’s non-dom status can be an important component of a balanced national economy, particularly with the UK increasingly mindful of the need to show it is open for businesses and an attractive location for global talent and investment.
Zena Hanks is a partner at UK accountancy firm Saffery Champness
