Super-rich overseas people in the UK registered as having non-domicile status are being legally allowed to avoid paying more than £3.2bn of tax on at least £10.9bn of offshore income a year, according to a report.
An analysis by academic economists found that 26,000 people granted non-dom tax status by HM Revenue and Customs (HMRC) collect an average of £420,000 a year in unreported overseas income and capital gains.
The researchers at the University of Warwick and the London School of Economics and Political Science (LSE) calculated that the tax these individuals save by using the “remittance basis” tax break works out at more than £125,000 a year on average.
Scrapping the non-dom scheme and taxing this income could raise more than £3.2bn in additional annual tax revenue, the researchers claimed.
The government insists the non-dom scheme is good for the UK economy as it attracts wealthy overseas people to the country, who pay tax on their UK income and spend a lot of money here. They say that scrapping the scheme would lead to many leaving the country, taking their money with them.
However, the Warwick and LSE research, which is based on HMRC filings, claims that “only 0.3% of those affected would leave the country (fewer than 100 people), most of whom are paying hardly any tax under the current regime”.
Arun Advani, associate professor at Warwick’s economics department and Cage research centre, said: “Historically, arguments against abolition of the non-dom regime rested on uncertainty about whether it would raise any money. It’s now plain to see that it does, so supporters of the status quo need to find a new case for its defence.”
Controversy over the non-dom tax loophole went from being a niche issue among tax experts to wider public debate this year after it was revealed that the wife of the then chancellor, Rishi Sunak, was using the status to avoid an estimated £4.5m in tax on dividends she collected from her billionaire father’s IT business.
After widespread outrage, Sunak’s wife, Akshata Murty, said she would pay UK taxes on all income going forward as her tax arrangements were not “compatible with my husband’s [then] job as chancellor”, adding that she appreciated the “British sense of fairness”.
However, Murty has retained her non-dom status, which could in the future allow her family to legally avoid an inheritance tax bill of more than £275m.
The vast majority of non-doms are foreigners living in the UK who use the status so they are only taxed on income and capital gains arising in the country, but not on those generated overseas. Most ordinary people living and working in the UK pay tax on income and capital gains arising here and abroad.
Famous non-doms have included the steel magnate Lakshmi Mittal, the media baron Viscount Rothermere and the oligarch and former owner of Chelsea football club, Roman Abramovich.
Andy Summers, associate professor at LSE Law School, said: “Non-doms receive ten times as much investment income offshore as they report in the UK. By rewarding non-doms for keeping their investments abroad, the current tax rules harm our economy as well as being unfair on ordinary taxpayers who must pay tax on their worldwide income.”
