Tiered tax regime could stop non-dom exodus, lobby group argues

A controversial ‘Tiered Tax Regime’ (TTR) charging wealthy foreign nationals a flat rate of tax based on their net wealth would make the UK a more attractive proposition to high net worth individuals and help stem the departure of non-doms, a fresh study has argued.

Under the proposal, which the authors claim has the overwhelming support of the non-dom community, non-doms would pay an annual charge of between £200,000 and £2m across four bands based on the total value of their assets net their debts.

Those with a net wealth under £100m would pay an annual charge of £200,000. Non-doms worth between £100m and £250m would pay £500,000 in the second band. And those that would fall in the top band – with over £500m in net assets – would pay £2m a year.

The regime would protect foreign assets from inheritance tax and exempt them from tax on foreign income and capital gain. It would also also exempt them from tax on UK investments for up to 15 years.

The TTR was outlined alongside a survey of non-doms conducted by Oxford Economics, which showed they have considerable support from those who currently claim the status. Seventy-three per cent of respondents said they would stay in the UK for longer were the proposed regime introduced.

The poll also found the TTR would reduce the drop in future immigration of non-doms, with just 21 per cent saying they would not have moved to the UK were the regime in place when they immigrated, versus 67 per cent under the plans proposed in the Labour manifesto.

Leslie MacLeod Miller, chief executive of Foreign Investors for Britain, a lobby group for non-doms which commissioned the research, said: “The Tiered Tax Regime offers a lifeline to the UK economy by incentivising non-dom investors and entrepreneurs to remain in the UK longer.

“Non-doms paid £8.9bn in taxes last year and they fully appreciate the need to pay their fair share to fund vital public services such as hospitals and schools.

“This is a balanced solution that would keep investment and talent here, while ensuring significant… contributions to the Treasury.”

The proposals from FIFB follow a period of intense speculation around whether the chancellor will water down the non-dom reforms that were a flagship part of the Labour manifesto.

Like her predecessor Jeremy Hunt, Rachel Reeves had promised to abolish the regime, but Labour’s proposals went further than the Conservatives’, removing a provision that meant non-doms would not pay inheritance tax on assets held in a foreign trust.

The policy triggered a siren of warnings from tax advisors and lawyers of a non-dom exodus, with an earlier study from FIFB finding that, as opposed to generating revenue, the measures could cost the exchequer £900m due to mass departures.

Earlier this month it was reported that Reeves could look to weaken the pledge.

Arun Advani, an associate professor at the University of Wawrick, whose research specialises in non-doms and taxing high net worth individuals, criticised plans, telling City AM: “Most non-doms are here to work, bringing their skills and paying substantial tax. They don’t have anywhere near enough wealth to benefit from a flat tax that starts at £200,000.”

But Dominic Lawrance, a partner of the Tax and Trusts practice at Charles Russell Speechlys, branded the TTR a “pragmatic solution”.

“Many UK-resident foreign domiciliaries have said they wish to continue living in the UK, or wish to come to the UK if the current regime had been allowed to continue,” he told City AM.

“The proposal of a tiered tax regime is designed so that the government can introduce something which will actually sit alongside the currently proposed reforms, but provide a special tax regime which will encourage foreign investors and entrepreneurs to come to the UK, paying a substantial amounts of tax around them.”

A spokesman for the Treasury said: “We are addressing unfairness in the tax system so we can raise the revenue to rebuild our public services. That is why we are removing the outdated non-dom tax regime and replacing it with a new internationally competitive residence-based regime focused on attracting the best talent and investment to the UK.”