One in four resident but non-domiciled taxpayers in the UK who responded to a recent poll regarding changes to the tax regime last year have made the decision to leave the country.
The findings underline the strong depth of feeling against the new 'non dom' rules and suggest that another nail has been hammered into the coffin of the UK's tax competitiveness.
According to the study, carried out by KPMG, 25% of non-doms say they will move abroad as a result of the new rules, while 90% say that the tax changes unveiled in the 2007 pre-budget report and confirmed in the 2008 Finance Act have damaged the UK’s reputation as a place to do business.
Carolyn Steppler, Associate Partner in KPMG’s private client advisory team, said: “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.”
Non-doms represent a relatively small section of the UK tax-paying population. But KPMG's survey suggests that if the 24% of respondents in the survey sample do quit the UK in the next two years do actually leave, the UK could lose out on accessing up to GBP90m in net assets. And if the additional 24% in the sample who have said they will see if the rules are reversed in the medium term were to follow suit in due course, this figure could triple.
Traditionally, those resident but not domiciled in the UK pay full tax on their UK earnings, but only pay tax on their foreign income if it is remitted back to the UK (the so-called 'remittance basis' of taxation). But changes introduced in last year's Finance Act have brought in a GBP30,000 (USD42,000) additional annual charge for the privilege of retaining non-dom status. Taxpayers have to pay this charge along with any other tax resulting from income declared on their annual tax return, but only if they have been resident in the UK for seven out of the last ten tax years. Non-doms can forgo this charge if their overseas income amounts to less than GBP1,000 per year, or if they opt out of the residence basis of taxation and allow their worldwide income to become taxable in the UK.
The government said last year that the changes would make the tax system fairer while maintaining the UK's overall competitiveness, but these claims were soon put to the test by the rapid change in the economic climate, and KPMG warns that if non-doms decide to leave, there is a strong chance that they won't be back when the economy rebounds.
"While the UK and other governments are now introducing fiscal measures to stimulate the economy and to encourage investment, the tax changes for non-doms are perceived as having the opposite effect," Steppler continued. "Our concern is that many non-doms may find that the UK no longer offers the opportunities it once did. If we want non-doms to come to the UK for employment or business once the economic position improves, the UK needs to be considered an attractive location. This includes an attractive fiscal regime."
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