HMRC Response to FOI on Non Doms

Mark Davies & Associates Limited

FOI Data Summary

The 2010/11 tax year is the most recent data currently available.

2010/11	2009/10	2008/09	2007/08
116,000	118,000	123,000	139,000

Represents a 17% drop in non doms since the introduction of the new non dom tax rules in Finance Act 2008.

2010/11	2009/10	2008/09
5,600	5,100	5,410

Possibly due to the increase in the top rate of tax to 50%.

2010/11	2009/10
49,000	44,000

Possibly due to the increase in the top rate of tax to 50%.

2010/11	2009/10
£6.2 bn	£6.2 bn

2010/11	2009/10
£1.8 bn	£1.8 bn

2010/11	2009/10
£0.2 bn	£0.1 bn

The figures released by HMRC are based on those filing tax returns. As a general rule, this will represent those non doms whose affairs are more complicated than ordinary PAYE employment. As such, these figures are probably indicative of the number of High Net Worth (NHW) and Ultra High Net Worth (UHNW) non doms. For simplicity, we will refer to both as HNW.

2010/11 represents another fall in the number of HNW non doms. In total it would appear that the number of non doms in the UK has decreased 17% from 2007/08 i.e. since the new rules on the taxation of non doms was introduced.

That is the scenario as at 5^th April 2011. In the intervening two year we have had continued political rhetoric targeting the wealthy, intense media scrutiny and the changes to the taxation of residential property. We expect to see this downward trend continue and we would not be surprised if it has accelerated.

It is interesting that the increase in the top rate of tax from 40% to 50% which occurred in 2010/11 raised no extra income tax from non doms on the whole (although as the number of non doms fell, it did extract slightly more per head).

We think it is reasonable to speculate that, all things being equal and as VAT is a consumption tax, VAT receipts from non doms have most likely fallen 17% since the new introduction of the new tax rules. One article which we have seen, quoted a figure for non dom indirect tax receipts of c.£3bn. If this is correct that represents a loss of £500 million annually although we acknowledge that this is a very simplified approach and a very speculative figure.

The RBC raised £168 million in 2010/11 which we understand is well below HM Treasury’s estimate when the changes were proposed/introduced in 2008. It would therefore appear that the changes to the taxation of non doms in 2008 are having the following effects:

In our view the introduction of the RBC was implemented in haste and it has acted as a disincentive to non doms planning to move to, and invest in, the UK. In addition, the changes introduced a web of highly complex rules which often mean that non dom clients curtail their expenditure in the UK for fear of inadvertently triggering a remittance. We believe this artificially depresses VAT receipts.

One particularly unnecessary (and rather perverse) complication relates to “nominated income”. At present the £30,000 (or £50,000) RBC represents a tax payment on a certain amount of foreign income and gains (called nominated income). The legislation is framed in such a way as to actively deter (with draconian consequences) non doms from bringing nominated income to the UK. This is despite the fact that the nominated income has effectively been subject to UK tax already. In our view the Government should take the simple step of amending the legislation to actively encourage non doms to bring nominated income to the UK. We would expect this to boost VAT receipts and this is surely a more economically sensible result than non doms spending the funds abroad.

HMRC FOI Response – Non Doms – 2010/11