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Ending UK non-dom regime could raise at least £3.2bn, study finds

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The UK Treasury could gain an extra £3.2bn a year if it forced “non-doms” to pay tax on their worldwide income and capital gains, according to a report on Tuesday.

The study by researchers at Warwick university and the London School of Economics, based on an analysis of 20 years’ worth of anonymised tax returns, also estimated that the unreported offshore earnings of UK residents domiciled overseas totalled £10.9bn in 2018, the latest year for which data is available.

The non-dom regime allows foreign domiciled nationals resident in Britain to earn money from capital abroad without paying UK tax on it for up to 15 years, provided they do not remit income or capital gains back into the country.

HM Revenue & Customs, which raises tax on behalf of the Treasury, collected £716bn in 2021-22.

The report follows criticism earlier this year of former health secretary Sajid Javid and Akshata Murty, the wife of former chancellor Rishi Sunak, who had previously claimed non-dom status.

The study estimated about 42 per cent of non-doms’ offshore earnings arise from income, with the rest made up by capital gains. It added that the average non-dom saved about £125,000 in tax in 2018 compared with equivalent UK-domiciled taxpayers.

“By rewarding non-doms for keeping their investments abroad, the current tax rules harm our economy as well as being unfair on ordinary taxpayers who must pay tax on their worldwide income,” said Andy Summers, associate professor of law at LSE and a co-author of the report.

Labour vowed in April to axe the non-dom regime if it won the next general election, although a replacement “temporary resident tax regime” could offer tax advantages for up to five years.

The report found that allowing individuals to retain the benefits of non-dom status during their first year of residence in the UK would reduce the potential £3.2bn by just £210mn, or 7 per cent. However, it estimated a reduction in potential revenue of £860mn after three years and £1.6bn after five.

The study also found that reforms in 2017 that ended permanent non-dom status “resulted in hardly any additional emigration” among those affected by the changes.

Dan Neidle, founder of the think-tank Tax Policy Associates, called the findings “solid” but said they underplayed “the impact of the [excluded property] trust rules”. These rules enable people to shield offshore earnings from HMRC after they no longer qualify for non-dom status.

As well as reforming excluded property trust rules, he suggested replacing the “complex and uncertain ‘domicile’ concept” with a simpler statutory test.

Arun Advani, an associate professor at Warwick university and co-author of the report, said the government’s plan to scrap the 45 per cent income tax rate would shrink the estimated £3.2bn tax boost but that “the crash in the pound caused by the mini-budget probably offsets that”.

The Treasury said that although “we want to attract talent to live and work in the UK . . . it is only right that those who choose to live here for a long time pay their fair share of tax, which is why we reformed the rules in 2017”.

“The tax regime for non-doms is an important feature of our internationally competitive tax system and the government remains committed to encouraging people to live and work here,” it added.

 

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