WHY DO WE HATE NON-DOMS?

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“Capital will always go where it is welcome and stay where it’s well treated. Capital is not just money. It’s also talent and ideas.  They, too will go where they’re welcome and stay where they are well treated.”

Walter Wriston

 

It is a truth universally accepted that mention the term ‘non-dom’ and a great percentage of people will express disgust – whether this be in the form of a gentle ‘tut tut’ or in the use of a more forceful expletive.  Nor can we blame the popular media for its policy of ‘bashing’ the non-dom as this is only a reflection of the general consensus.

So why do we hate non-doms and is it not time to review not only the general opinion of this class of individual but the way it is taxed?  If not, we are in danger of losing a powerful class of person whose contribution to the UK economy is not only useful but essential in promoting growth and economic stability.

What is a non-dom?

A ‘non-dom’, abbreviation of ‘non-domiciled’, as the name suggests is a person who is resident but not domiciled in the UK.  The difference between residence and domicile in brief being the former is where one resides the latter is the country with which one has the greatest connection.  One is born with a domicile of origin normally that of one’s parents.  The rules as to the various forms of residence and domicile are too long for this article but are ably set out in Her Majesty’s Revenue and Customs Handbook.

Taxation of non-doms

Interestingly ask the average person on the street, or the man on the Clapham omnibus as the legal profession prefer, when the whole non-domicile regime began the majority will answer to the tune of back in the ‘80s, under Margaret Thatcher.  This is laughable, the non-domicile tax regime has been in place since 1799.

The non-domicile regime traditionally allowed those with ‘non-dom’ status to live and work in Britain without being subject to UK taxation on any income or gains earned outside of the UK.

Successive governments, most viciously under the Blair/Brown years, have overhauled the non-dom tax regime so that it is now merely a shadow of its former glory.

The introduction of the Annual Charge on non-doms opting to retain non-dom status and use the remittance basis for taxation, meaning that they would only pay UK tax on overseas income remitted to the UK already proved the growing hostility towards non-doms.

As it stands currently, for non-doms who have been resident for seven out of the previous nine years the Annual Charge is £30,000, for those that have been resident for at least 12 out of the previous fourteen years the charge increases to £60,000.

The final blow however which came in the changes made in April 2017, saw the removal of the right of non-doms that have been resident in the UK for more than fifteen out of the previous twenty years to be considered non-dom, instead they will become ‘deemed domiciled’ in the UK.

‘So-what?’

Despite changes in government the policy of bash the ‘non-dom’ shows no sign of relenting, to which your average chap on the Clapham omnibus might easily reply ‘so what’.  This however is a serious mistake.  The non-dom regime helped make the UK into a place where foreigners wanted to do business which in turn played a key role in shaping the success of the UK not least the rise of the City.

One only has to examine the list of primary donors to many of the UK’s institutions, galleries, museums and even universities to see the enormous value of non-doms.

Another mis-conception that must be corrected is that non-doms pay no tax.  This is simply not true, in 2015/16, non-doms contributed just under £6.6billion to the UK Treasury.  Not a figure to be sneezed at.  This figure only includes income tax, it does not consider for example the VAT raised from money they and their employees spent in shops, restaurants and on other services in the UK.

Brexit and Beyond

Far be it for a mere mortal to criticise the government but Theresa May has been given the perfect opportunity to build a solid post Brexit economy however to date her government has shown no signs in abating the vitriolic tax treatment of the non-dom.  This is foolhardy and short sighted.  Bashing the non-doms may get a likeable headline the day after the Budget but long term it will cause serious harm to the UK’s competitivity and ability to attract inward investment.  It appears that the government still has not learnt what Walter Wriston made clear, if you create a hostile environment capital will go elsewhere.  Hong Kong and Singapore are nipping at the UK’s heels, not forgetting New York.  If they can’t invest without penalty in the UK investors will move and this is a huge loss to everyone not just the wealthy.

If you would like any further information on Private Wealth  then contact Olivia Cooper at Meaby & Co LLP on 0207 703 5034 or ocooper@meaby.co.uk.