One in five bankers use non-dom tax savings status, study finds Business News

One in five bankers exploit special status to reduce UK tax on overseas income, a first such study has found.

Being tax non-domiciled allows individuals to avoid paying UK tax on money generated from overseas investments or rents on overseas property. This also means that only UK assets are eligible for inheritance tax. Those using it still have to pay tax on income generated in the UK.

The report follows a separate investigation by The Independent revealed that the Chancellor’s wife, Akshata Murthy, is using non-dom tax status to reduce her tax bill for foreign income in the UK.

Whether or not to use non-dom status to minimize UK tax is optional, as per HMRC guidelines. The study found that very wealthy people are “significantly more likely” to use status, rather than those with low incomes.

Non-dom status is not available to ordinary taxpayers. It allows those using it to live in the UK full-time and for several years before it expires.

There are no official statistics on the costs or benefits to UK public purse of the policy of granting status to certain people, but around 70,000 people claimed status in 2018.

Four in ten people who earned £5m or more in 2018 have claimed non-dom status at some point, academics from the London School of Economics and the University of Warwick have found, after gaining access to a decade of anonymised HMRC data.

Andy Summers, associate professor at LSE, said: “The non-dom scheme is used mainly by the very wealthy, who benefit from tax relief not available to ordinary taxpayers. This giveaway could cost the treasury significant revenue and merits further consideration at a time when everyone is facing tax hikes.

Changes introduced in 2017 limited the non-dom benefit to those who were born in the UK or have lived there for 15 years. The primary determinant of whether or not a person qualifies for status is usually where a person’s father lived at birth.

One in ten residents of some of London’s most expensive areas of Westminster and Kensington used non-dom status at some point between 1997 and 2018.

There is a wide range of geographic links for non-doms, according to the study. About one in seven come from India and a similar number come from the United States, with the rest largely made up of Western Europe or English-speaking countries like Australia. The fastest growth in the use of special tax status is for people from China or former Soviet states.

The research also revealed clusters of non-doms in areas such as London’s South Kensington near the French consulate and Aberdeen South near oil industry centres. Sportsmen also seem to use status around the Manchester area.

Arun Advani, assistant professor at the University of Warwick, said: “While most people clearly have no idea about the non-dom regime, I think the biggest shock could be for bankers and other people. working in city jobs, when they realize how many of their co-workers benefit from a tax system they don’t have access to.”