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Non-dom changes must not risk UK growth

Labour’s tax raising plans for non-doms could backfire

HMRC’s statistics on non-UK domiciled taxpayers up to the tax year ended 2023 show that Labour must be careful their tax proposals are based on reality, not public perception.

Joe Neal, Tax Manager said:

The taxation of non-UK domiciled (non-dom) individuals has been very topical in the recent election with both Labour and the Conservatives looking to change the rules. Non-dom individuals are people whose permanent home, is considered to be outside the UK. Individuals are considered deemed domiciled if they have been resident in the UK for at least 15 of the last 20 tax years.

There is a public perception that there is both a large number of these individuals and that they are avoiding paying their fair share of tax. In reality, we can see from HMRC’s figures that there were 83,800 non-domiciled and deemed domiciled taxpayers in the UK in the 2022/23 tax year and they paid 3.4% of the total income tax collected by HMRC in the year and over 5.5% of the total capital gains tax.

The incoming Labour government are hoping to raise a further £5.2 billion from these individuals over the next 5 years by scrapping the non-dom scheme and replacing it with a residency-based system to reduce ‘loopholes’ in the system. However, in order to raise that money, Labour needs to avoid wealthy individuals leaving the UK for other jurisdictions – which they may well do if pressured by both the uncertainty of this new scheme, which we have few details of, and higher taxes.

In addition to the tax paid by non-dom individuals, we can see from HMRC’s publication that £1.16 billion of business investment relief was claimed in the 2021/22 tax year. Business investment relief effectively allows non-domiciled individuals to bring overseas funds to the UK tax-free where they use these funds for qualifying UK investments. This is a vital tax relief for UK growth, bringing overseas money into the UK economy and businesses. We will have to wait to see if the new government propose any major changes to this scheme too.

Would you like to know more?

If you have any questions about the above and how it applies to your business, please get in touch with your usual Blick Rothenberg contact or Joe Neal using the form below.

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