Non-dom tax take jumped to £12bn before Labour crackdown
The overall tax take from wealthy foreigners who once claimed the now obsolete non-dom status rose to £12bn the year before Labour and the Conservatives announced their respective crackdowns against the regime.
Data from HMRC released on Thursday showed the amount of capital gains tax, income tax and national insurance contributions paid by the cohort nudged up by £107m in the 2023/2024 tax year, to reach the largest amount since tighter rules around the regime were introduced in 2017.
The scheme’s users contributed four per cent more income tax over the year. That jump was partially offset by lower national insurance contributions and capital gains tax liabilities, which fell five and three per cent respectively, the UK’s tax authority said.
Revenues for the Exchequer from the wealthy group rose despite the UK losing roughly 400 non-doms over the year ended 6 April 2024, equating to roughly 0.5 per cent of the non-dom population. The small drop in numbers brought an end to a period of rapid growth in uptake in the wake of the pandemic, officials said.
Alexandra Britton-Davis, partner at City auditor Saffery, said the figures demonstrated the contribution made by non-doms and former non-doms despite the now obsolete policy being “a generous regime”.
The numbers for the year to April 2024 are the final raft of data before both the Conservative and Labour parties confirmed plans to scrap the non-dom regime last year, which tax experts and wealth advisers have warned triggered an exodus of claimants from the UK.
Rich exiting UK at ‘unprecedented rate’
In March 2024, then Chancellor Jeremy Hunt said his government would abolish the centuries-old status if it won the next general election, but opted to retain other benefits for wealthy foreigners including preferential treatment of foreign-held trusts.
But after Labour’s landslide in the summer, Rachel Reeves confirmed her party would plough ahead with a stricter interpretation of the crackdown, which made non-doms’ trusts and other foreign-held assets liable for inheritance tax.
Advisers have warned the Labour Chancellor’s version of reforms accelerated the number of departures, with Marc Acheson of Utmost Wealth Solutions warning that non-doms and former non-doms were exiting at an “unprecedented rate”.
“While the non-dom regime was imperfect, it drew people in for the long-term and resulted in significant tax receipts,” he added. “Its replacement with the new four-year Foreign Income and Gains regime is short-term in nature and internationally uncompetitive.”
Robert Salter, a director at advisory firm Blick Rothenberg, said: “In addition to the direct personal taxes which the non-dom population has contributed to the UK, these individuals have also been paying billions more into the UK economy through VAT on the products & services they buy in the UK, while their companies in the UK will be paying significant amounts in UK corporation tax too.
If the tax changes introduced by the Government do drive the non-dom population away the Government will not just lose the income tax, CGT and NICs mentioned above, but some of the receipts from these additional taxes too.”
The latest HMRC figures also revealed a strikingly low take up of a little-known incentive aimed at encouraging non-doms to invest more in the UK, known as Business Investment Relief (BIR). Less than one per cent of wealthy foreigners were found to have taken advantage of the scheme, which is structured to encourage investment in British assets.
Arun Advani, director of the Centre for the Analysis of Taxation, told Morning Wire: “The shocking thing [the data] reveal is that less than one per cent of non-doms used the relief aimed at encouraging investment in the UK.
“The biggest error in the current reform – by both Hunt and Reeves – is to tax UK investments of new arrivers, encouraging them to invest anywhere but here.”