The estimated number of non-domiciled taxpayers rose to 74,000 in the tax year ending 2023 ahead of the likely abolition of the non-dom regime, according to latest figures released today (9 June) by HMRC.
This was a slight rise over the 68,900 people claiming non-dom status in the tax year ending 2022.
The overall tax take (a combination of Income Tax, CGT and National Insurance contributions) was roughly flat at £12.3bn.
With the new Labour government relying on raising significant additional amounts of tax from non-doms, today’s non-dom statistics show what a dangerous assumption this is according to a number of industry experts.
Rachel de Souza, partner at RSM UK, said: “Post pandemic, the number of non-doms had been falling and in 2023, this trend was reversed with a small rise in non-doms to 60,700. However, assuming Labour goes ahead with the proposed abolition of non-dom status then we are likely to see a significant decrease in non-doms in the coming year.
“HMRC estimates that the UK currently has at least 83,800 non-domiciled and deemed domiciled individuals, paying a total of £12.3bn of tax. Interestingly, although the number of taxpayers has risen by 6%, the tax being paid has actually fallen slightly, which suggests that there is a small amount of turnover between wealthier non-doms leaving the UK and being replaced by less affluent arrivals.
“In total, only 2,400 individuals chose to pay the remittance basis charge in 2022 and it is from these people that the government is expecting to raise £3.2bn. On average that implies an additional tax yield of over £1.34m per non-dom.
“The number of non-doms paying the higher remittance basis charge of £60,000 has held steady at 500 in the five years to 2022. This suggests that relying on such a small number of taxpayers to plug the revenue gap may be wishful thinking.
“The statistics show that deemed domiciled taxpayers had UK tax liabilities of at least £3.4bn in 2023. We suspect this will fall dramatically by 2025 as a direct result of the changes to the non-dom rules as many of these individuals are internationally mobile. However, it’s unlikely we will be able to confirm the position as it will no longer be possible to collect the data once the non-dom status has been abolished.
“Whilst there has been an increase of about 5,000 non-domiciled taxpayers in 2023, the trend in the statistics show that very few of these would go on to pay the remittance basis charge. The point being that only a very small minority of new arrivals have sufficient overseas wealth to make using the non-dom regime attractive.
“The political uncertainty in the UK over the last couple of years seems to have had very little impact on non-dom numbers. So far, the possibility of a Labour government that was reflected in opinion polls going back several months has not translated into a mass exodus. But our guess is that the picture for 2024 and 2025 will be very different.”
Elsa Littlewood, a private client tax partner at BDO said: “The incoming Labour Government plans to raise £5.2bn by closing what it calls ‘non-dom tax loopholes’ and investing in reducing tax avoidance. Today’s figures show that there is a growing number of people who will be affected by the Government’s proposed abolition of non-dom status.
“The abolition of the non-dom regime, which is really the abolition of the remittance basis of taxation, was initially proposed by the previous Conservative Government who predicted that their changes would raise £2.7bn per year by 28/29. The Labour manifesto made it clear that it too plans to abolish the remittance basis of taxation and replace it with a stricter regime than the one proposed by the Conservatives – although we don’t yet have full details.
“The Government now has an opportunity to design a regime which is fit for purpose in a modern world, attracting entrepreneurs, talent and overseas investment into the UK to support growth for UK plc. Whereas the original proposals from the previous Conservative government and the subsequent Labour announcements contain some sensible common-sense improvements, there are also a number of problems and potential missed opportunities.
“If these proposals are to be implemented from April 2025, we would expect the Government to launch a consultation soon to give sufficient time for effective scrutiny of the new rules and allow non-doms to consider their options.
“Those who currently claim non-dom status will want to keep a very close eye on policy announcements in this area and should be considering their options now. Those with assets or property in offshore trusts who may be brought into the scope of the UK’s IHT regime may need to pay particular attention.
“We have already seen several non-doms accelerate their plans to leave the UK and expect the numbers of departures to increase over the coming months. Of course, the very fact that they are non-doms means that they were going to leave the UK at some point; what is perhaps going to be more interesting is the impact a new regime will have on the numbers of people investing in and coming to work in the UK in the future.”
Nicholas Hyett, Investment Manager at Wealth Club said: “Non-dom’s will soon be extinct in the UK, with the new government looking to abolish the tax status that many wealthy individuals use to shelter their international earnings from UK tax. These numbers are therefore a glimpse into the past, soon to be part of the fossil record.
“However, the Labour manifesto promised a process of evolution with “a modern scheme for people genuinely in the country for a short period”. These numbers show how important it is to get that new regime right. £8.9 billion of tax revenue is not to be sniffed at, and while taxing the rich might raise more revenue it also runs the risk that the global elite decide to move their taxable wealth somewhere with a lighter touch tax regime.
“The government’s task is to deliver an economic climate that’s more welcoming and ideally a good deal more reliable than the British summer has proven this year. If it can achieve that it has the potential to achieve the best of all worlds – a tax regime where the wealthy contribute more, but don’t feel the need to flee abroad to sunnier climes.”
