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‘Non-Dom’ Status: What is it, and why is it controversial?

Non-Domiciled Status: What is it, and Why is it Controversial?

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The concept of “non-domiciled” status, commonly referred to as “non-dom,” is an often misunderstood element of the UK tax system. It refers to individuals who reside in the UK but have their permanent home, or domicile, outside the country. This status significantly impacts how individuals are taxed, particularly regarding their foreign income.

Understanding non-dom status involves the nuanced distinction between domicile and residency. Domicile is a complex legal concept typically inherited from a person’s father at birth. It differs from residency, which is determined by the amount of time spent in a country each year. While residency is fluid and can change annually, domicile is intended to reflect a long-term association with a country.

Unique Tax Arrangement

Non-doms benefit from a unique tax arrangement: they are only required to pay UK tax on their UK-sourced income. Their foreign income remains untaxed unless it is remitted, or brought into, the UK. This system can lead to substantial tax savings, particularly for those with significant income outside the UK. However, it is not without its costs or limitations. Non-doms who have resided in the UK for extended periods must pay an annual charge to maintain their status, which escalates the longer they remain in the country.

Criticism of the non-dom status is widespread. Critics argue that it creates a two-tier tax system, favouring the wealthy and providing them with an unfair advantage. This criticism has been underscored by high-profile cases, such as that of Akshata Murty, wife of Prime Minister Rishi Sunak. After public outcry over her non-dom status enabling her to earn substantial amounts abroad tax free whilst her husband ran the country, she opted to pay UK taxes on her global income. The debate surrounding non-doms touches on broader issues of fairness, social equity, and the role of taxation in addressing inequality.

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How Many ‘Non-Doms’ Are There?

The number of non-doms has been on the decline, especially following changes to the rules in 2017, which tightened the criteria for maintaining non-dom status. According to HM Revenue and Customs, there were approximately 68,800 individuals claiming non-dom status in 2022. This figure represents a diverse group, predominantly born outside the UK, with significant concentrations in affluent areas of London.

General Election Looming: The Future of ‘Non-Dom’ Status

The discussion around non-dom status is emblematic of broader debates within UK tax policy, reflecting tensions between attracting global talent and ensuring a fair and equitable tax system. Chancellor Jeremy Hunt is reportedly considering abolishing it entirely, despite having long standing personal opposition towards such a policy. This would ensure any widespread tax cuts anticipated within the Spring Budget due on 6 March are fully funded within the UK’s ‘fiscal headroom’. This budget could potentially be the last before a General Election in the latter half of 2024. The proposed changes, while potentially increasing tax revenues, must be evaluated in the context of their impact on the UK’s attractiveness as a global financial centre.

The debate over non-dom status is  a reflection of deeper societal debates around fairness and ensuring the richer are taxed in exactly the same manner as the poorer. As we consider the future of this status, we must ask ourselves what kind of society we wish to build and how our tax system can best reflect those aspirations.

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