At the time of the introduction of the concept of deemed domicile (DD) for income tax (IT) and capital gains tax (CGT) purposes in the UK, in April 2017, there was much concern about the impact this would have on non-domiciliaries remaining in the UK, and separately but importantly, non-residents choosing to make the UK their home.
HMRC yesterday released detailed statistics covering the non-domiciled population between the 2008/09 and 2017/18 tax years, the significance being that the remittance basis charge (RBC) was introduced in the 2008/09 tax year. By way of brief recap, under those rules a resident non domiciled individual (RND) who had been resident for 7 out of the previous 9 years would have to pay a £30,000 RBC to be taxed on the remittance basis. Further escalating charges were introduced in April 2012, under which a RND who had been resident for 12 out of the previous 14 years would have to pay a £50,000 RBC. In April 2015 the £90,000 RBC was introduced, which applied where RNDs wished to be taxed on the remittance basis, and had been resident for 17 out of the previous 20 years. In each case it was possible to elect to pay the charge one year and not another.
In April 2017 matters changed dramatically with the introduction of deemed domicile (DD) for UK tax purposes, under which RNDs who have been UK resident for 15 out of the previous 20 years can no longer elect to be taxed on the remittance basis, and are instead subject to arising basis tax on worldwide income and gains (with some ongoing favourable treatment for protected trusts).
A number of interesting points stand out in the figures released yesterday.
First, the total number of taxpayers claiming non domiciled status in their self-assessment returns has gone down from 137,000 in the 2008/09 tax year, to 78,000 in the 2018/19 tax year. There are also less UK RNDs, down from 98,900 in the 2008/09 tax year, to 64,000 in the 2018/19 tax year. Which at first glance is unsurprising given that many will be DD.
In terms of immediate impact of the DD rules, the two years prior to the 2018/19 tax year saw a fall in the number of non-domiciled taxpayers, with 78,700 in the 2017/18 tax year, and 91,200 in the prior 2016/17 tax year (before the deemed domicile concept came into force). HMRC concludes that ‘this suggests the impact of the deemed domicile reforms has started to stabilise and so the number of non-domiciles has remained largely unchanged from the previous year’
We also see a steep drop in those paying the RBC, assumedly directly connected to the introduction of DD status in April 2017, with 4,700 taxpayers paying the RBC for the 2016/17 tax year, and 1,800 taxpayers paying the RBC for the 2017/18 tax year. Again not a great surprise given that many will now be DD.
What really jumps out though is the meaningful tax contribution made by non-domiciliaries, with total IT, CGT and National Insurance (NICs) contributions from this population for the 2018/19 tax year being £7,828m. Interestingly, the total tax take from non-domiciliaries who are taxed on the arising basis is meaningfully lower than those who are taxed on the remittance basis (with remittance basis taxpayers paying combined £6.046m in IT, CGT and NICs for the 2017/18 tax year) while RNDs taxed on the arising basis for the same period paid £1.442m in IT, CGT and NICs.
London benefits most
The statistics also reveal, again unsurprisingly, that within the UK, London had the largest non-domiciled population in the 2017/18 tax year, with 58% of the UK non-domiciled population being in London, and 74% of UK IT, CGT and NICs being paid in London.
Contrast with IHT take
In a separate series of figures also released by HMRC yesterday, the total IHT receipts for the 2019/20 tax year totaled £5.2bn, being a 4% decrease on the IHT revenue for the 2018/19 tax year. While there are many interpretations of why there has been a decrease, the main factor is viewed as the introduction of the residence nil rate band in the 2017/18 tax year, which will now be showing in effect.
However, what is especially interesting is this shows in even starker relief the extent of the contribution made by non-domiciliaries to the UK tax take, when one contrasts total IHT take for the past year with meaningful total IT, CGT and NICs contributions by non-domiciliaries of £7,828m for the 2018/19 tax year (or over £7bn for a clearer comparison) for the same period.
So what does this all tell us?
At one level it is slightly reassuring, that there is a relatively stable population of non-domiciliaries since the deemed domicile changes, however what is not as easily discerned from these figures are those who have arrived since April 2017 and are claiming the remittance basis - and arguably the fact that the figures show the impact of the DD changes has stabilised also means less people are arriving who claim non domiciled status. Which is not surprising given concerns about the stability of the non domiciled regime and how welcoming the UK is to non-domiciliaries.
Given the meaningful tax contribution made by non-domiciliaries it is important that the UK revitalises its appeal to non-domiciliaries, and one clear way to do that is to ensure stability of the rules. Add to this the political focus on ensuring London starts to thrive again after lockdown, and the sheer number of non-domiciliaries in London, their importance to the UK becomes ever more evident. In that respect, the many tax reviews currently taking place may cause greater concern, although it can be said that most competitor jurisdictions will also be looking to raise taxes as a result of the impact of Covid 19. However, it sounds a note of caution that a wealth tax would certainly not assist stability and certainty, which, given the economic importance of non-domiciliaries to the exchequer, should not be overlooked
‘this suggests the impact of the deemed domicile reforms has started to stabilise and so the number of non-domiciles has remained largely unchanged from the previous year’ HMRC