You may have heard, bandied about amongst the General Election hubbub, the words ‘non-dom’. Non-dom refers to non-domiciled individuals, or those who spend enough time abroad to avoid paying any UK tax on the income they earn overseas. You can read about the current arrangement here.
As part of their election campaign, Labour is promising to scrap non-dom status and force all UK residents who work overseas to pay UK income tax. Currently, those who live abroad for a certain number of days per year do not pay UK tax on their foreign income, depending on several other factors; but some of them do pay tax in the country where they earn the money. They also pay an annual fee of £30,000-£90,000 for living in the UK part time, alleviating some of those lost taxes.
Ed Miliband has said that the existence of non-dom status is linked to tax avoidance and makes the UK an “offshore tax haven”. According to the Labour leader, this change could bring in hundreds of millions of pounds for the Exchequer, but the Conservative Party have said that the country could lose the same amount, as some of the wealthiest UK residents who currently benefit from the status might choose to leave.
According to the Tories, the number of non-doms “exploded” during the last Labour government, and the law was reviewed at the time, but they decided not to scrap the status. The rules have been tightened over the years, with stronger restrictions on who is eligible, and the annual fee being increased as recently as December 2014, in the Autumn Statement; but scrapping the non-dom status completely could be a game-changer.
Lib Dem leader Nick Clegg has now joined in the debate, saying that if his party are successful next month he will end the “inherited right” to non-dom status. Currently, UK citizens are granted non-dom status if their father or grandfather lived abroad at the time of their birth – however, the same does not apply if only the individual’s mother or grandmother were living abroad when they were born. UKIP have also stated that they will end the hereditary right to the status, as well as increasing the annual fee, if they get into government.
The law was first introduced in 1799, at the same time that income tax was created, and it has been described by Miliband as “an increasingly arcane, 200-year-old loophole”. But with other countries, such as Belgium and the Netherlands offering a similar deal, could the 116,000 UK non-doms decide to jump ship if Labour were to keep their promise?
If you have questions about non-dom status and how a change in the law could affect you, get in touch and one of our experts will talk you through your options.