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Study from Irwin Mitchell Private Wealth finds tax revenue at risk if non-doms leave the UK


A study from Irwin Mitchell Private Wealth and conducted by the Centre for Economic and Business Research finds that reforms to the tax rules for non-doms could reduce tax revenue if more than two-fifths of those affected decide to leave the UK.

The report, Reforms to the Taxation on Non-doms, analyses the latest statistics and research available in relation to the numbers of non-doms and the tax contributions they make.

With the tax rules for non-doms changing on 6 April 2017, the report sets out possible scenarios if individuals who have been here for 15 of the past 20 years decide to leave the UK.

The report finds that there have been a growing number of individuals claiming non-dom status in recent years with an estimated 122,708 registered in 2016-17. However, the number of people claiming non-dom status is predicted to fall sharply (12 per cent in 2017-18) following the implementation of new reforms.

The report also highlights that the 119,260 individuals who claimed non-dom status in 2014-15 generated income and capital gains tax of GBP6.9 billion, accounting for roughly 4 per cent of total income and capital gains tax receipts received by the UK government.

The Office for Budget Responsibility projects that the changes to non-dom taxation will generate an additional GBP995 million over the next four years. If there are significant departures of non-doms from the UK, for the OBR’s target to be met, there will have to be a significant increase in arrivals of non-doms to the UK or individuals who lose their non-dom status but remain UK resident will have to generate GBP2.6 billion in tax revenues until the tax year 2020-21. This equals around GBP256,411 per individual per year. 
The Irwin Mitchell report calculates that if fewer than 38 per cent of those individuals who currently use the remittance basis but will lose their non-dom status leave the UK, the net revenue impact of the changes will be positive. However, if more than 38 per cent leave, the changes could have a negative effect.
Alex Ruffel, a tax partner at Irwin Mitchell Private Wealth says: “The report is clear that non-doms make a valuable contribution to the treasury’s income, some GBP6.9 billion in 2014-15. It takes 2.1 million average UK earners to generate the same amount of tax as 119,260 non-doms.

“What the research shows is that there is a tipping point at which the UK economy will benefit from the changes: the OBR prediction is that they will increase tax revenue but there is an element of uncertainty – if they lead significant numbers of current or former non-doms to leave the UK or discourage others from coming, the net revenue impact will be negative.

“It remains to be seen how many of those affected will decide to remain in the UK. With the possibility of Brexit negotiations affecting other areas of their life in the next few years it is difficult to predict the course of action they will take.”

Oliver Kolodseike, senior Economist at Cebr says: “The importance of non-doms to the UK economy is significant with one non-dom contributing as much as 18 average earners in terms of income and capital gains tax. A departure of some of the wealthiest UK individuals could therefore impact public finances and overall economic growth.

“While latest available figures from HMRC indicate that there are currently around 120,000 non-doms, this report highlights that only around 2,500 individuals will be directly affected by the reform. The analysis furthermore shows that if more than around two fifth of these individuals decide to leave the UK as a result of the new tax regime, the Treasury could face a shortfall of tax income.

“However, it is uncertain to what extent the tax reform will lead to an exodus of non-doms. On a purely financial basis it may make sense for some of the wealthiest non-doms to settle somewhere outside the UK, with Italy likely to become a more and more attractive destination given that it is implementing a new tax regime favouring the international elite. However, the decision on whether or not to leave a country is influenced by many other factors such as economic and political stability, a functioning health system, education, national security and of course personal preference.”

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