Rishi Sunak is 'losing the campaign' says Michael Portillo

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The number of individuals in the UK under the non-domiciled taxpayer scheme – whereby a UK resident does not have to pay UK tax on income and capital gains earned overseas – was 68,300 in the tax year ending in 2021, according to new data published by HMRC. This represents a fall from 76,500 the previous year, likely due to the pandemic hindering new arrivals. Despite the decline, the amount the group as a whole owed in taxes remained steady at just under £7.9billion, suggesting they defied the economic slowdown of the pandemic and increased their earnings.

The conditions for residency are determined by the amount of time a person spends in the UK in a tax year, automatic if this exceeds six months.

Most residents pay UK tax on all their income, whether it comes from within the country or abroad.

But special rules apply to residents whose domicile – their permanent home or country of origin – is overseas, which exempts them from paying UK tax on foreign income.

In this way, non-dom residents get to enjoy all the benefits of living in the UK while avoiding taxation on their investments by locating them offshore.

Andy Summers, Associate Professor at LSE’s Law Department, said: “The non-dom regime is used mainly by the very rich, who get tax breaks not available to ordinary taxpayers. 

“This giveaway could be costing the Treasury significant revenue and deserves more scrutiny at a time when everyone else is facing tax rises.”

In the tax year ending in April 2021, HMRC reported 68,300 individuals claimed non-domiciled taxpayer status on their Self Assessment returns.

This represents a significant drop from the 76,500 the previous year, most likely due to fewer non-domiciled taxpayers settling in the UK due to the disruption to international travel caused by the pandemic.

It is estimated that the group as a whole was liable to pay £7.9billion in income tax, capital gains tax and National Insurance contributions from their work in the UK in the tax year. 

Despite the lower number of non-domiciled taxpayers in the country, this total tax bill marginally exceeds that of the tax year ending in 2020, suggesting the most wealthy have remained and thrived.

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Four in ten individuals who earned £5million or more in 2018 had claimed non-dom status at some point in the past, according to a recent study by LSE and the University of Warwick.

Analysing anonymised tax returns of all claimants between 1997 and 2018, the study found 20 percent of top earning bankers had previously benefited from the scheme, as did 40 percent in the oil industry and 25 percent in the car industry.

London is home to 58 percent of the UK’s non-domiciled taxpayer population, who account for 72 percent of their total tax contribution.

More than 93 percent were born abroad, with just under 15 percent coming from India and almost as many from the US. 

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Many high-profile figures in the UK are reported to have claimed non-dom status in the past, including Lord Ashcroft, former deputy chairman of the Conservative Party, Daily Mail owner Lord Rothermere and the sanctioned former owner of Chelsea football club, Roman Abramovich.

In April, it emerged that the wife of then-Chancellor Rishi Sunak, Akshata Murty, was claiming non-domiciled status.

Ms Murty held a 0.9 percent stake in the Indian digital services company Infosys, founded by her billionaire father, reportedly netting her an estimated £50million in dividends since 2015.

Without non-dom status, Ms Murty would have been liable to pay up to £20million in UK taxes.

Mr Sunak is reported to have declared his wife’s status to the Cabinet Office when he joined the Government in 2018, and to have transferred his shares in the couple’s joint investment firm solely to her before entering Parliament in 2015.

Ms Murty gave up the status following the political storm that ensued, many criticising the Chancellor for overseeing historic increases to the tax burden on British households as his wife saved millions from the scheme.

The non-dom tax exemption is as old as income taxation itself, and its proponents argue wealthy non-domiciled taxpayers contribute to the exchequer indirectly by spending vast sums on service providers and by paying VAT on luxury goods.

However, the political will to scrap the scheme has increased in recent years, as many from John Major to Ed Miliband have pushed for revisions.

Reforms in 2017 brought an end to permanent non-dom status by imposing UK tax rates on all worldwide income for anyone who has been in the country for 15 of the previous 20 years. 

According to the HMRC data, 10,100 formerly non-domiciled taxpayers were subsequently deemed domiciled in the UK in the tax year ending 2021.

The amount of income tax, capital gains tax and National Insurance contributions liable by those taxpayers claiming deemed domicile status was £3.4billion, vastly exceeding the estimated £2billion lost from those who chose to leave the country as a result of the reforms.

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