The jig may finally be up for Britain’s non-doms. After years of having it all this beleaguered elite are in the cross hairs. And now they’re going to pay.
From the 6 April 2017, non-doms who have lived in Britain for at least 15 out of the past 20 years – the 15/20 Rule – will lose their privileged status. Under the new rules they will be taxed like the rest of us.
Previously, for the fortunate few the UK was something of a tax haven. Non-doms could move to Britain while broadly keeping their worldwide assets outside the UK tax net – indefinitely. However, that is not to say they were completely exempt from tax; the fly in the ointment being that any income earned in or remitted to the UK was (and will continue to be) fully taxed.
The non-dom regime is a Napoleonic throwback. An oddity from a time when foreigners could shelter their foreign assets from Britain’s wartime taxes. Centuries on, little had changed – apart from us. A potent current of populist anguish and anti-immigration sentiment has swept political systems, making George Osborne’s reactionary U-turn on centuries worth of tax law far from surprising.
I still recall a senior partner at my former firm sagely advising a client that ‘the rules haven’t changed for 200 years, they aren’t about to change now’. But change they have. Long term non-doms will now pay tax on their worldwide assets.
The treatment of UK residential property, the emblem of economically disenfranchised Millennials, has also changed. The mansions of Hampstead and leviathan Knightsbridge apartments will now attract inheritance tax and can no longer be safeguarded by offshore holding structures.
Hereditary non-dom status will be abolished for those born in the UK. While this will mercifully remove some of the worst abuses of the system, thought should be spared for the many exotic great-grandfathers who will now be forgotten. Foreign paternal ancestry will cease to be an expedient shortcut to tax nirvana.
Prior to my life in private client law, I was like many people: distrustful of the nefarious, tax-dodging and asset-inflating elite. The rules of the game seemed different – if you were rich and foreign. However, legal life soon disabused me of this naïve persuasion.
My clients were neither tax tourists nor oligarchs sheltering their ill-gotten gains. They had already paid tax on their offshore earnings. Overwhelmingly there was no tax dodge in play. They moved to Britain, started businesses and created jobs. They paid our taxes, didn’t use the NHS or game the benefits system. They were net contributors to this whole machine and not its beneficiaries. Their minks and Maseratis weren’t bankrolled by riches built with UK resources and they owed no debt of gratitude for their fortune.
Crucially and contrary to popular misapprehension, non-doms already pay a vast amount of UK tax. In 2014/2015 just 116,100 individuals accounted for almost £6.6 billion in income tax. According to law firm Pinsent Masons, annually the average non-dom pays £56,589 in UK income tax. This is more than ten times the £5,152 paid by a regular tax payer. Furthermore, once resident for at least seven out of the past nine years, a remittance basis charge is payable by any non-dom who continues to benefit from the system. Initially the charge is £30,000 before increasing to £60,000 after 12 years.
Understandably, there’s a level of bemusement that a system devised to encourage high-earners to settle in the UK is seemingly turning against them. Such nervousness is not helped by modern populist pressures. It is politically in vogue to rage against the immorality of tax inequality, even when the contribution of those favoured is disproportionately greater. Nowhere is this more evident than in Theresa May’s attack on ‘the privileged few’ and ‘citizens of the world’.
‘If you’ve always been privileged, equality begins to look like oppression.’ If the adage is right, and if this is just the beginning of a general clampdown, many internationally mobile non-doms may leave Britain altogether. I know of several people who are deferring moving to the UK until they know which way the pendulum is swinging. Surely at a time where the Government can little afford to shut its doors to wealth creators there’s a case to be made for a dose of economic pragmatism.
Of course, a significant majority of non-doms will choose to stay. Ben Grist, partner at Dixon Wilson, says: ‘Families with children and those who have lived in Britain for many years are more likely to take a long-term view. It’s important to remember that the regime remains a generous one, especially when properly implemented. However, there’s no denying that those with shallower ties to the UK will be considering other jurisdictions.’
For non-doms wondering about their position, the rules themselves are exceptionally intricate and there are no easy answers. What is clear, however, is that change is afoot. As ever, the world of palaeontology is ripe with sound economic lessons: best to preserve this plump juicy dodo before it becomes extinct.
Hanushka Toni is a freelance journalist and former private client solicitor
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