Abolishing the non-dom regime would raise more than £3.2 billion each year, finds new report

By rewarding non-doms for keeping their investments abroad, the current tax rules harm our economy.
- Andy Summers, Associate Professor at LSE Law School and III
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Non-domiciled residents in the UK (‘non-doms’) receive at least £10.9 billion in offshore income and capital gains each year, which they are not required to report to HMRC or pay tax on in the UK. Taxing this income would raise more than £3.2 billion in additional tax revenue each year and also remove the current disincentive to invest in the UK. Refuting concerns that abolishing non-dom status could lead to a mass exodus from the UK, researchers calculate that only 0.3% of those affected would leave the country (fewer than 100 people), most of whom are paying hardly any tax under the current regime.

These findings come from new research which gained unprecedented access to the anonymised tax records of the UK’s non-doms. The study, by researchers from the University of Warwick and The London School of Economics and Political Science (LSE), analysed the anonymised personal tax returns of everyone who claimed non-dom status for tax purposes between 1997 and 2018. The researchers used evidence from reforms to the non-dom rules in 2017 to estimate how many non-doms would leave the UK as a result of abolishing the regime altogether or restricting it based on number of years residence.

Non-doms are individuals who are resident in the UK, but who claim on their tax return that their permanent home (‘domicile’) is abroad. Under rules originating from Britain’s colonial history, this entitles them to claim special tax treatment not available to ordinary taxpayers (known as the ‘remittance basis’), even though they may spend most of their time in the UK and have lived here for several years. Unlike other UK residents, non-doms can avoid paying tax on their investments by locating them offshore.

On average, a non-dom using the ‘remittance basis’ tax break has £420,000 in unreported income and capital gains. This is more than ten times their UK investment income and gains – which do not receive a tax break – highlighting the cost for investment in the UK. The current regime saves them more than £125,000 on average in income tax and capital gains tax each year. This figure already accounts for the alternative tax planning options a wealthy individual would pursue if non-dom status were not available.

Most of the unreported income and gains (55%) belong to non-doms who have lived in the UK for fewer than five years. This makes the treatment of those who have been in the UK for a relatively short period crucial to the total revenue that could be raised from a reformed policy. Maintaining the regime for new arrivals in their first year would have little fiscal cost, reducing revenue by 7%, but keeping it for even the first three years after arrival reduces the yield by 27%.

Reforms in 2017 which restricted access to the non-dom regime for long-staying non-doms led to just 0.2% of them leaving the UK. Among more recent arrivals, who had been in the UK for less than three years, around 2% left as a result of the reform. These findings refute concerns raised by Chancellor George Osborne and Shadow Chancellor Ed Balls during the 2015 General Election, that abolishing non-dom status could ‘cost Britain money’ due to a mass exodus. For this to occur, the migration response would have to be more than 15 times larger than found by this study.

Arun Advani, Associate Professor at the University of Warwick’s Economics Department and CAGE Research Centre, said: “Historically, arguments against abolition of the non-dom regime rested on uncertainty about whether it would raise any money. It’s now plain to see that it does, so supporters of the status quo need to find a new case for its defence.”

David Burgherr, Research Officer at LSE’s International Inequalities Institute (III), said: “Some of the richest non-doms actually reported the lowest levels of UK income. One in sixteen report no UK income at all, but on average earned more than £450,000 a year abroad, all without having to pay any tax in the UK.”

Andy Summers, Associate Professor at LSE Law School and III, said: “Non-doms receive ten times as much investment income offshore as they report in the UK. 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.”

Behind the article

Non-doms are individuals who are resident in the UK, but who claim on their tax return that their permanent home (‘domicile’) is abroad. This entitles them to claim the ‘remittance basis’ of taxation, meaning they neither have to report nor pay UK tax on investment income or capital gains from assets held abroad unless these are remitted to the UK. If they have lived in the UK for more than 7 of the last 9 years, they are required to pay a charge (the ‘Remittance basis charge’) for this. Reforms in 2017 removed access to the remittance basis for individuals who had been resident in the UK for more than 15 of the last 20 years, and for individuals who were born in the UK to a UK father but who were claiming to have a domicile elsewhere.

The report used access to anonymised confidential data from the tax records of everyone who claimed non-dom status at any point over the period 1997–2018, accessed via the HMRC Datalab.

Mandatory disclaimer: This work contains statistical data from HM Revenue and Customs (HMRC) which are Crown Copyright. The research data sets used may not exactly reproduce HMRC aggregates. The use of HMRC statistical data in this work does not imply the endorsement of HMRC in relation to the interpretation or analysis of the information. 5. This research was funded by the Economic and Social Research Council (ESRC) through the CAGE Research Centre at Warwick (ES/L011719/1), ‘Top Flight’ New Investigator Grant (ES/W001683/1), and by LSE International Inequalities Institute, LSE Law, and Warwick Economics.