Bishop & Sewell

A new report from the London School of Economics and Warwick University suggests that if the Labour Party, as it has promised, were to abolish the non-dom regime it would net an additional £3.6bn a year in tax revenues.

The non-domicile regime was thrust into the spotlight when in April 2022 it emerged that Rishi Sunak’s wife, Akshata Murty, an heiress to the IT services company Infosys founded by her father, adopted non-dom tax status. She has since said she will relinquish that status.

An individual who is registered with HMRC as non-domiciled in the UK continues to pay tax on their UK income but does not have to pay UK tax on income or capital gains earned overseas. Individuals will be required to pay an annual fee of up to £60,000, called the remittance charge. The tax status does not allow them to bring their money into the UK or deposit it in a UK bank account, leaving them facing a potentially high tax bill if they do.

The non-dom regime is as you might expect complex, with anyone wishing to claim the tax status having to demonstrate that their domicile – the country in which they were born, where they have a permanent home and where they might eventually plan to return – is outside the UK.

But crucially, and perhaps where controversy arises, because an individual is considered tax resident in the UK, non-doms often do not pay tax in the country in which they are domiciled, potentially leaving their worldwide income untaxed.

The Labour Party has said that if it were elected to form a government it would abolish the non-dom tax regime.

A report in the Financial Times (23 June) points to 68,300 individuals with non-dom status in the UK in the tax year ending 2021, contributing £7.9bn in personal taxes to the UK coffers. The research from the London School of Economics and Warwick University suggests that if the regime was scrapped it would generate an additional £3.6bn a year in tax revenue.

Its suggested abolition has attracted widespread reaction with some advisers predicting an exodus of wealthy individuals and others suggesting that whilst it may put off those looking for a new home, those with current non-dom status may choose to simply stay put.

However, and like any good plot twist, the Labour Party has said that in scrapping the current non-dom regime it will look to other countries including Canada, France and Japan to develop a new tax system.

Indeed, some countries have been quietly copying the UK’s approach to non-doms. Both Italy and Greece have adopted measures that allow a tax exemption for a set period of time for a fee.

It is entirely possible that whilst a future Labour government may scrap non-dom status, it may replace it with something that looks remarkably similar to the current regime.

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The above is accurate as at 27 June 2023. The information above may be subject to change.

The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.

Category: Blog, News | Date: 27th Jun 2023

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