Non-dom tax perks are unfair, discriminatory and must end
Non-dom tax perks enjoyed by Chancellor Rishi Sunak’s wife have made headlines recently. The Health Secretary, Sajid Javid, has also just acknowledged that he held non-dom status before his political career.
Non-dom status has been available since 1799 and enabled British colonialists to shelter foreign property from taxes. Today, 'non-doms' are individuals who live in the UK but claim to have permanent residence (domicile) abroad.
Ordinary people living in the UK pay tax on their worldwide income and gains, but these rules do not apply to non-doms. All non-dom status holders are required to pay income tax on their UK earnings but avoid income and capital gains tax on assets held elsewhere, as long as the amounts are not remitted to the UK. This is known as the “remittance basis” of taxation. There are also valuable inheritance tax, business investment relief and other tax benefits.
Non-dom status provides plenty of opportunities to play tax avoidance games
To claim non-dom status, the applicants necessarily indulge in a cost-benefit calculation, for example, comparing the tax benefits against the cost of securing the status. To secure the remittance basis of taxation, an annual charge of £30,000 is payable by individuals residing in the UK for more than seven out of the previous nine years. This charge rises to £60,000 for individuals living in the UK for more than 12 out of 14 years. The maximum duration of non-dom status is 15 years. Non-dom status provides plenty of opportunities to play tax avoidance games and in recent years HMRC has targeted a number of non-doms for suspected tax avoidance.
In the tax year ending 2020, some 75,700 wealthy individuals secured non-dom status. Recent research published by the University of Warwick shows that four out of ten individuals earning around £5 million or more claimed non-dom status, compared with less than three in one thousand among those earning less than £100,000. The biggest beneficiaries are concentrated in banking, oil, auto, sports and the film industry. Additionally, 58 per cent of the non-dom taxpayers are based in London.
HMRC estimates that in 2020 non-dom taxpayers paid some £7,853 million in income tax, capital gains tax and national insurance contributions. However, it does not reveal what amounts would have been payable if non-doms were taxed on the same basis as ordinary people.
The government claims that in the tax year ending 2019, £1,031 million was invested in the UK by 500 non-dom taxpayers. However, it does not explain whether the investment is in productive assets, or used for speculation which creates bubbles in commodities, securities and property markets and inflates house prices. The investment can also be illusory in that mechanism is being cynically used to exploit tax advantages. In any case, the investment can be made independent of the non-dom tax perks.
Non-dom tax perks are unfair, discriminatory and must end. Non-doms enjoy all the benefits of UK social infrastructure but are not liable to taxes on the same basis as the majority of people, even when they have lived in the UK for 14 years.
The Labour Party’s 2019 manifesto pledged to "scrap the status altogether in our first Budget, consulting on whether there is a need for an exception for foreign residents in the United Kingdom for a short period of time”. This remains the best policy option.
Lord Sikka is a Labour peer.
Get the inside track on what MPs and Peers are talking about. Sign up to The House's morning email for the latest insight and reaction from Parliamentarians, policy-makers and organisations.