Tightening tax regime prompts thousands of wealthy non-doms to leave UK, research shows

News - Tax

Written by Ray Clancy

Tuesday, 23 March 2010 09:22

Thousands of wealthy UK non-doms have left the country due to tax changes which they claim make them feel unwelcome and unable to invest.

As many as 7,000 have moved to more favourable jurisdictions since the UK’s £30,000 annual levy on non-doms, residents who pay tax only on their UK income, not their international earnings, was first mooted in November 2007, according to a research by the Cass Business School commissioned by wealth manager Stonehage.

It means that up to up to 5% of non-doms have left out of the estimated 140,000 believed to be resident in the UK. Others are reducing the time and money they spend in the UK. Most have moved to Switzerland and regard their move as a medium term one.

It is not just the £30,000 charge that is bothering them, the research also shows. They think the new rules are unnecessarily complicated, that the tax regime is no longer transparent or stable and that further attempts will be made to increase the taxes they will have to pay.

‘Future tax uncertainty, complexity and the feeling that they are no longer welcome are having a significant negative impact on RNDs,’ said Andrew Rodger, Stonehage executive director.

He believes the changes are a big mistake as they will leave a substantial hole in the UK Government’s coffers. Non-doms spend more than £19 billion in Britain each year and contribute £8.25 billion in taxes, some £4.5 billion in income tax and £3.75 billion in VAT and stamp duty, according to the research.

The report also points out that non-doms not only have high levels of funds for investment and spending in the UK but also generate business activity and thus employment.

A commitment by the UK government not to change the rules further for five to 10 years might prevent the exodus. But if the regime tightens then between 25 and 50% more might consider leaving. ‘Such a mass movement of RNDs would be extremely damaging for Britain. It would hit potential tax revenues at a time when the Government is heavily focused on increasing revenues and cutting government spending,’ the report warns.

The research found that With the UK is tightening up tax rules, other countries are opening their doors to the non-dom jet set. France and Spain last year pushed through five year tax exemptions for new foreign arrivals.

Israel now offers up to 20 years’ tax exemption to new residents, although advisers say it is rarely considered by relocating non-doms. India and France offer a pre-clearance system, which means new residents know exactly the level of tax they will have to pay.

‘We knew that the non-doms were unhappy about the tax changes, but we had not appreciated the extent to which they seem to be prepared to vote with their feet on this issue,’ said Carolyn Steppler, associate partner in KPMG’s private client advisory team.