HMRC statistics show drop in number of non-domiciled taxpayers

HMRC have recently published a statistical commentary on the UK tax contributions of individuals claiming non-domiciled status in their tax returns in the 2020/21 UK tax year.

Key statistics include that:

• the number of individuals claiming non-domiciled status fell c. 11% year-on-year, from 76,500 to 68,300;
• despite the drop in the number of non-domiciled taxpayers, the total income tax, capital gains tax and national insurance contributions paid by those taxpayers remained stable at around £7.9bn; and
• at least a further £3.4bn was paid by 10,100 individuals who are deemed domiciled in the UK.

HMRC say that this additional £3.4bn more than offsets its estimate of the £2bn decrease in annual receipts from non-domiciled taxpayers which resulted immediately following the 2017 changes to the taxation of non-domiciled taxpayers. Broadly speaking, the 2017 changes limited access to the favourable remittance basis of taxation to individuals who had been tax resident in the UK for fewer than 15 of the previous 20 tax years, with longer-term UK resident non-domiciled individuals treated as “deemed domiciled” in the UK for tax purposes.

HMRC also suggest that the c. 8,000 drop in the number of non-domiciled taxpayers in the 2020/2021 tax year is a “one-off”, attributable to a drop in new arrivals as a result of the Covid-19 pandemic, and should not be taken as indicative of a wider pattern of declining numbers. They posit that the decrease in the total number of non-domiciled taxpayers from 119,400 in 2015/16 (before the 2017 changes were announced) to 79,500 in 2019/20 is “largely explained” by taxpayers becoming deemed domiciled, rather than by taxpayers leaving the UK.

HMRC explain the difference in figures (a decrease of c. 40,000 as against a total of 10,100 known deemed domiciliaries) by reference to the fact that only deemed domiciliaries with a non-UK domicile of origin have a strong incentive to describe themselves as deemed domiciled in their self-assessment tax return. They suggest the anomaly may therefore be explained at least in part by a substantial population of deemed domiciliaries who have a UK domicile of origin (i.e. individuals whose father was domiciled in the UK at the time of their birth). Interestingly, this suggestion diverges significantly from the conclusion in a recent study by the University of Warwick that showed that, as of 2018, 93% of non-domiciliaries were born outside the UK.

On the surface these conclusions are very interesting as, taken at face value, they suggest that the 2017 non-domicile changes did not have any negative impact on tax receipts.

The statistics are based only on information reported in self-assessment tax returns and so necessarily do not take into account tax receipts from other taxes (including VAT, stamp duty land tax, inheritance tax and corporation tax) associated with the presence (or otherwise) of non-domiciliaries in the UK. It will be interesting to see how the figures (and HMRC’s commentary) are received in the academic community.