Elite group of British-born residents enjoy ‘non-dom’ tax haven

At least 800 British-born United Kingdom residents enjoy “non-domiciled” status, a tax break intended for temporary residents, according to data released in response to a Freedom of Information Act request by Reuters.

Lawmakers said the information highlighted the need to change the tax rules to ban so-called “hereditary non-doms”, where parents can pass on the tax privilege to their children.

The non-dom tax status, which was created more than 200 years ago, lets individuals shelter foreign income from tax, but a Reuters investigation last week showed many non-doms also use the status to avoid tax on earnings from British businesses.

The British tax authority, Her Majesty’s Revenue and Customs (HMRC), said that in the 2012-2013 tax year, 800 of the 48,300 non-doms who were taxed on the “remittance basis” — the technical term for non-doms who were only taxed on income declared as having been earned in Britain or remitted to Britain from overseas — were born in the United Kingdom.

Since 2008, the number of British-born non-doms has remained within a range of between 780 to 840 people, HMRC said.

All other British residents pay tax on worldwide income, no matter where they make it, and critics of the non-dom system say it is unfair to allow a small group of mainly very wealthy individuals shelter some of their earnings from tax.

The issue rose to the top of the political agenda in Britain ahead of the May 7 election, after the opposition Labour party said it wanted to abolish the system.

However, the ruling Conservative party beat Labour and a finance ministry spokeswoman said there were no plans at present to amend the scheme, which its supporters say helps attract foreign investment and talent into Britain.

No public record of who has non-dom status is maintained, but British-born people who have said they held the non-dom status include former racing driver Jackie Stewart and Chief Executive of HSBC bank Stuart Gulliver.

There is no public information available that shows in what way British-born citizens living in Britain might have taken advantage of their non-dom status.

Nick Smith, a Labour Member of Parliament (MP), said the HMRC data showed the need to change the system so that it “delivers as advertised”.

“We can argue that this isn’t in the ‘spirit’ of non-dom status, but that doesn’t solve the problem,” Smith said.

Richard Bacon, a Conservative MP, said the idea some Britons were taxed in a special way was “not very English”.

“For people who are born in the UK, with a British passport and who spend most of their time here, the rules should be the same,” he said.

The HMRC figures exclude non-doms who pay tax on both their British and foreign income. However, they can still enjoy preferential tax treatment, compared to British-domiciled taxpayers, in respect of income from overseas trusts and may face lower estate taxes, tax advisors say.

Sophie Dworetzsky, partner with tax advisors Withers, said a majority of British-born non-doms chose to be taxed on the worldwide income basis, rather than the remittance basis.