Bringing non-UK domiciled individuals’ tax contributions into perspective

9 April 2015

Ed Miliband has promised to end non-UK domicile tax status if he wins the general election. Mr Miliband said he plans to bring in this change to ensure that everyone who makes Britain their permanent home pays their fair share. The Conservatives have responded by saying they would reform the law on domicile so that an individual would no longer inherit their domicile from their father. This blog looks briefly at the contribution made by non-UK domiciled individuals to the UK and the law on domicile in England and Wales.

Although there are probably many millions of non-UK domiciled individuals in the UK, approximately 116,000 people actually claim non-UK domiciled status. Of those who claim non-UK domiciled status, only 46,700 actually claim the remittance basis. The majority therefore pay UK tax on their worldwide income and gains. The Financial Times recently published information, obtained through a Freedom of Information request, which indicated that collectively, non-UK domiciled individual taxpayers paid approximately £8.27bn of income tax and national insurance contributions in 2012-13. From that figure, the non-UK domiciled individuals who claimed the remittance basis on average paid tax of £132,762 per person, which is roughly equal to the total tax paid by 25 ordinary British tax payers.  Non-UK domiciled individuals therefore contribute significantly to the UK tax regime. Ultimately, non-UK domiciled individuals are more likely to avail of private medical treatment and to send their children to independent schools, meaning that they are less reliant on UK public services.

UK Trade and Investment (UKTI) are responsible for attracting foreign investors to the UK. In their Inward Investment Report for 2013/2014, UKTI state that foreign direct investment programmes in the UK are estimated to have brought in 111,000 new jobs.  The report also states that commitments worth £23.8 billion have been obtained from overseas investors, who are putting their money into projects to develop UK infrastructure. Many of our clients move to the UK on Tier 1 (Investor) visas and they are, the majority of the time, non-UK domiciled.  Many will start businesses here in the UK, generating employment and further tax revenue. They will pay UK tax personally (most likely at the higher and additional rate) on their UK source income and gains (and any income and gains they bring to the UK if claiming the remittance basis).  Further, as such individuals tend to be wealthy, they make a significant contribution when it comes to consumption spending in the UK.

Although the announcement by Mr Miliband is a long way from becoming law, his comments add to the growing public perception portrayed by the media that non-UK domiciled individuals are looking to avoid tax; for the majority of individuals, this is most definitely untrue as the facts indicate that their contribution to the UK tax system is great. Non-UK domiciled individuals have already been targeted by the current government with the introduction of the annual £90,000 remittance basis charge and the uncertainty created by this latest announcement may well affect the UK’s reputation as an attractive and stable jurisdiction for foreign investors. Unlike businesses who find it hard to leave when faced with a hostile political or tax environment, wealthy individuals can move easily and quickly. 

Further information

If you would like further information about any of the issues discussed in this blog or other issues in relation to UK tax, please contact a member of our Private Client team.

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