Why are HMRC not challenging non-dom status?

There’s a surprising dearth of data on non-doms in the UK. In one sense this isn’t a surprise. The overwhelming majority of the perhaps 4.9 million non-doms in the country won’t have substantial assets or income abroad. Their domicile status won’t be of interest to them – and it won’t be of interest to HMRC.

But even in relation to those for whom the status is financially meaningful, data is not routinely published. About 114,000 were registered non-doms 2005-06 (before the introduction of the ‘remittance basis charge’). And about 118,000 were registered in 2009-10 (after its introduction): the latest year for which I have been able to find data. Of those 118,000, the charge was paid by 5,100 people (4.3%). Many of the remainder are likely to be ‘newer’ non-doms: the charge is only payable if you have been resident in the UK for seven out of the preceding nine years. (Putting the matter another way, you can be a resident non-dom for six years and claim the remittance basis without incurring liability to the charge.)

So the figures we have are out of date. But the more important data deficit – for those attempting to understand the tax consequences of our decision to maintain non-dom status – is our ignorance of the amount of tax we forego. As Ed Balls explained back in 2007, information is not held on overseas income and gains that do not give rise to a tax liability in the UK.

The numbers will be substantial, though. Iain Tait, who heads the Private Investment Office of London & Capital, described the £50,000 remittance charge as “largely symbolic.” However you carve it, there will be many billions at stake.

One of the odd things about non-dom status – and there are many (see this piece I wrote last Friday) – is that your possession of it at any given time is a matter of your then present intention as to your future status. I was brought up in New Zealand: do I now intend to return there at some stage in the future? That might not be such an easy thing for HMRC to assess. But judges are well used to such questions. State of mind is a critical element of pretty much every criminal offence. It’s also worth remembering that the burden of proving possession of non-dom status rests on s/he who claims it.

Against that background – vast amounts of tax at stake and so every reason for both sides to fight, a Revenue authority which may not be best placed to assess status, and judges trained to do exactly that – you might expect to find a slew of cases in which HMRC have sought to test entitlement to domicile in the courts. I know I did. But I was wrong.

In the last ten years (which is as far back as I checked), there’s only been one concluded challenge to domicile, nine years ago. There’s also a single indication of a challenge to come.

Many of us in the profession are surprised at HMRC’s seemingly ready acceptance of assertions of UK non-dom status. This morning’s Guardian account of Stuart Gulliver is a good example: it reports he went to University in Oxford, lives in the UK and is married to an Australian. The FT adds that he grew up in Plymouth, and chooses to be based in London. The Independent says he was born in Derby. But he is nevertheless, apparently, accepted to be domiciled in Hong Kong. Now, I’m not saying that conclusion is wrong – but it does raise questions.

What does all of this evidence? A reluctance on the part of HMRC to take on the richest and best-lawyered? A policy decision not to alienate the most mobile? Or merely that us tax professionals are wrong to be surprised. Whatever the answer, it’s a pretty striking state of affairs.

Follow me @jolyonmaugham

31 thoughts on “Why are HMRC not challenging non-dom status?

  1. Thank you for the promised article. Would HMRC’s strategy regarding non-dom status be subject to FOI?

  2. I would think so – if it was sensibly crafted. I asked their usually responsive press office on Friday morning – but have yet to receive an answer…

  3. Are you sure he’s married to “an Australia” [sic] ? Because that would raise some far more fascinating constitutional and legal questions… (Sorry; I shall try to be more constructive in future)

  4. He isn’t any more :P)

  5. Excellent, and thank you.

  6. “If you made the assumption it represented 20% of the tax saved for each of 120,000 non-doms then the annual tax foregone…would be around £30 billion per annum.”

    Murphyesque. I could double that number by assuming 40% and halve if by assuming 10%. Neither of my assumptions are based on evidence but then (I assume) neither is yours so why play this particular game? The media result is that by tomorrow there could be headlines that ‘£30bn a year could be lost through tax avoidance by non-doms’ and by Wednesday the £30bn will be an accepted ‘fact’ and prefixed by ‘at least’. It’s not helpful to the debate.

    Besides, as I keep repeating, change the rules and you change behaviour. It is not ‘tax forgone’ if it wouldn’t be collected if the rules were changed and all the non-doms moved to Switzerland. You might as well compute the tax forgone on Bill Gates’ income which we could collect if only he moved here.

    I agree, though, with the sentiment of the rest of the article. The rules on domicile have the rigid framework of a blancmange. (My understanding is that Robert Maxwell had a plot reserved for him in an Isreali cemetary as part of his claim to Israeli domicile, showing how silly it can be.)

  7. I assume you don’t mean Murphyesque as a compliment?

    Your point that the number is meaningless is fair: the number is only as good as the assumptions. And my post hasn’t sought to defend the assumptions. But there are 120,000 people out there claiming non-dom status and it’s important to recognise that (even including behavioural effects) that represents very substantial amounts of money. You would say, rightly, that you don’t make great policy by bandying meaningless numbers around. I recognised that point in my post on Friday when I argued for some serious modelling. But I think you must also recognise that you don’t make any policy unless you engage the public and politicians in the importance of change.

  8. A wee bird has mentioned that there are some recentish Parliamentary questions on non-doms http://ow.ly/Jvedc http://ow.ly/Jveqj – although they don’t take the data I’ve cited an awful lot further.

  9. He lived and worked in Hong Kong for most of the first 23 years of his career, and continues to have an office there. If this was included in the list of facts being reviewed when assessing how realistic his non-dom status is, then the decision is not as stupid as it has been portrayed to be.

  10. I spent some time looking for solid data on how long he had been working in Hong Kong. I couldn’t find any. Plainly he worked there for some time – longer perhaps than the FT implies when it says here that Hong Kong was “his home in the mid-1990s” (which I could also have cited and didn’t).

  11. A very interesting contribution as usual. As to whether there is an improper motive on HMRC’s part, a couple of points merit iteration.

    First, as was noted in the tweets subsequently, there is a distinction between those cases which are litigated and those where HMRC have indeed enquired as to a taxpayer’s status.

    Secondly, and this leads from the first point, the lack of litigation could well be explained by the fact that any enquiry on HMRC’s part as to dom status is likely to be returned with a mountain of evidence from the well-advised taxpayer detailing their non-dom status (or, on the converse, will be well advised to concede the point immediately).

    Taxbod mentioned this point, and I think he is correct. The taxpayer claiming non-dom status is not usually Joe Everyman, but rather Rich McWealthyson, and in addition to being well advised, will have ample resources to challenge the point.

    As I detailed in my guestblog, HMRC are endowed with a managerial discretion which prescribes that it ought to use its resources in a manner which obtains the highest net return for the exchequer. Challenging the dom-status through litigation, on the other hand, is likely to a waste of time and resources for HMRC.

    As such, I would say that the lack of litigation is explained by a combination of the fact that the taxpayer will be well-advised/well-resourced and that litigation would likely be a futile exercise for HMRC, rather than by some extraneous motive on HMRC’s part.

  12. Hi Stephen,

    As I’ve noted, I asked HMRC’s Press Office (on Friday morning) for the data on how many enquiries HMRC have raised into assertions of non-dom status. I have indicated that I will publish that data – together with my observations on it – if and when I receive it. HMRC have said they’re on the case. In the meantime, respectfully, you’re just guessing.

    I also think you’re on rather weaker ground when you say that (in effect) ‘HMRC’s exercise of their managerial discretion as to how to expend limited resources is proper’ than I am when I say that a question arises as to whether it is. HMRC spend an awful lot of money pursuing 000s of penalty appeals every year – I think it’s reasonable to ask the question why there aren’t more challenges to the really high value domicile cases. Certainly I’d be pretty alarmed if, as you imply, the fact that (as we’d agree) the non-dom taxpayer is likely to be well-resourced is reason for HMRC not to pursue challenges. And I’d be surprised if that turned out to be the reason HMRC advance.

    Finally, I don’t think it’s fair to characterise my post as imputing some evil motive to HMRC. My understanding is that they do have special contact arrangements for very wealthy individuals, and we both seem to agree that they might (sometimes) be wary about litigating against properly tooled up taxpayers. That certainly accords with what I hear from the inside. And that’s not a question of motive or policy – it’s a rather more subtle effect of feeling a bit under-resourced.


  13. Just picking up on a few points there. Indeed, much will pivot on what the Press Office reveals.

    Secondly, I didn’t mean to imply that your post was imputing an ‘evil’ motive-I was using the words ‘extraneous’ and ‘improper’ (public law terms) to refer to considerations which aren’t relevant, that’s all.

    Finally, I do think this all comes down to resources. What I should have mentioned is that the law affords HMRC a wide margin of appreciation as to how to minimise resources and collect higher taxes. We defer to its expertise on such judgments. But you are correct in asking the question and I am very interested in the reasons that will be given to explain the status quo as regards enforcement (given, especially, that the dom status, given its dependence upon facts, appears infinitely challengeable),

  14. Just to confirm a few numbers in the post:

    I’m not sure the estimate for remittance basis is accurate. According to this link: https://www.whatdotheyknow.com/request/210272/response/524956/attach/3/1880%20Smith.pdf
    the number of individuals actually claiming remittance basis is less than 50,000. It seems more than half of those eligible for the remittance basis actually claim it.

    It seems probable to me that most non-doms are short terms visitors/professional secondees, who (while mostly on good money in the big scheme of things, up to say £250k a year – all taxable in the UK) aren’t high net worth individuals and in particular won’t have masses of offshore income.

    I’m not saying the tax lost isn’t in the billions, but if it is then that’s likely because of a tiny number of exceptionally well off individuals (say 1000 people in total, most probably working in private equity or similar), rather than the entire non-dom population.

  15. As I understand it the box you tick on your return is actually that you are non-dom AND it affects your tax liability. You were from 09/10 liable to pay the £30k for this privilege. So I would be interested to know the source for the figure of non-doms. This is interesting because the figures you quote would suggest the tax saving for those claiming non-dom status was significantly higher than £30k. I think we can say this safe that we are not indulging in the sort of reading of statistics Andrew Carter attributes to certain other bloggers.
    It hints at quite high levels of “tax forgone”. However, I agree with Andrew that your initial methodology for estimating this would have been better edited out. An equally pointless method would be to say £30k is a very reasonable price to save £50k, giving a mean tax saving of £20k. Multiply that by 5100 taxpayers and you have £100m.
    This estimate is certainly no better than yours, but no worse and of a different order of magnitude. What is needed is HMRC’s data on the effects over time of the sliding scale. Then we will know the tax savings to non-dom taxpayers. It is worrying that HMRC doesn’t have data at its finder tips ready to hand to you on request.

  16. I am afraid your understanding is not quite right. You only have to pay the charge when you have been non-dom for seven out of the last nine years. Before that you can still claim the status; you just dont have to pay the charge.

  17. Oh right, I’m really quite wrong then. A question , however: if you have been non-dom for 7 out of 9 years but don’t wish to pay the charge, do you then not tick? And if not, then what does HMRC measure? What is its source, if any, for calculating the number of non-doms?

  18. I don’t know what the mechanic is, but you’re not then entitled to the remittance basis charge – instead the ‘arising’ basis (like ‘doms’).

    As to HMRC’s source, I think it’s claims made to the remittance basis on SA returns


  19. So, despite the factual error caused by failure to do a little research (!) the point stands. We cannot know what tax is saved by non-doms until more recent data is provided. When it is then we should be able to see how many are deterred by the charge and at what level of charge and so should get some idea of the sort of tax newly arrived non-doms save.
    All of which, however, sort of misses the point. This is a bribe (why do I like writing that?) The idea is to attract investment into the UK. The remittance basis does exactly the opposite, to a large degree anyway. The domicile rules are broken, if indeed they were ever fit for tax purposes.

  20. In years gone by, one of my clients had his non-UK domicile of origin queried by HMRC and the Q&A included the following:-
    Q. Where were you born?
    A. Germany
    Q Where was your father born?
    A. Germany
    Q. Where did he die?
    A. I don’t know
    Q. Come on, you cannot expect HMRC to believe that?
    A. The German army was retreating and it could have been in Poland, Hungary or Czechoslokaia
    Q. Oh, I see, let’s move on……………………………….

  21. That’s sufficiently funny that I’ve broken with convention and removed a typo 🙂

  22. I’ve been looking at the Parliamentary debates on the Finance Act 1914, prompted by a recent article in the FT: http://www.ft.com/cms/s/0/6b83be28-b863-11e4-b6a5-00144feab7de.html

    It seems that the Finance Act 1914 created the difference in income tax treatment between persons domiciled in the UK and those not domiciled in the UK, when Lloyd George was Chancellor of the Exchequer. Previously, the UK taxed income arising in the UK, and also income arising outside the UK but remitted to the UK, on the basis that only income created or enjoyed under the protection of British law should be taxed here. Lloyd George sought to change that, to tax UK residents on their worldwide income, but accepted it would not be right to tax people here only temporarily.

    The amendment introducing an exception for non-doms seems to have gone through without debate on 13 July 1914, under the guillotine. See: http://hansard.millbanksystems.com/commons/1914/jul/13/clause-5-taxation-of-income-in-respect#column_1646

    But it was discussed again on report: http://hansard.millbanksystems.com/commons/1914/jul/22/clause-5-taxation-of-income-in-respect

    Relevantly, the Conservative MP for Gloucester, Henry Terrell KC, said:

    “Questions of domicile are always most difficult to decide, even when the man is dead, and you have to determine the question from his acts during his life. But when you have the man alive and he has only to say, “I intend to retain my domicile of origin,” how are you going to prove that he has abandoned that domicile and adopted domicile in the United Kingdom?”

    Incidentally, this tax change drove the Vestey brothers overseas in 1915, although William Westey came back and was ennobled in the 1920s (controversially, given his comments to the Royal Commission on income tax a couple of years earlier).

  23. Brilliant! Thanks – have tweeted it out!

  24. Excellent debate. Non Dom challenges are very resource intensive and uncertain. When I was an SCO investigator In 90s the then Inland Revenue Sols Office advisied we could not challenge the (US) domicile of choice of a uk resident who had spent just a few years in States but had taken precaution of buying a grave in California.

  25. Heh – Vestey’s evidence to the Royal Commission is over here – http://www.kessler.co.uk/wp-content/uploads/2013/07/Vestey_Royal_Commission_evidence_and_ensuing_debate.pdf

    He also delivered a “personal statement” after he was ennobled in 1922 – http://hansard.millbanksystems.com/lords/1922/jun/29/lord-vestey#column_144

    He is pretty open about his reasons for emigrating. The issue then (as often now) was competition with American businesses, which paid no US tax on foreign profits that were not remitted to the US.

    William Vestey came back to the UK after setting up the trusts which much later led to the litigation with the Inland Revenue (“one should be taxed by law, and not be untaxed by concession”).

  26. I have had 2 business partners who were advised by an accountant to apply for Irish passports (as the had Irish fathers). Although they were born in the UK and had lived in the UK all their lives they have been able to claim non dom status and alter their business affairs to they can receive capital and income offshore. An option not available to me due to accident of birth. Its seems the non dom issue is glaring injustice which could be fixed very easily buy there doesn’t seem to be any political will to tackle it Instead people who entered into fully disclosed onshore and legal tax arrangements a decade ago are being hounded by the press and public and effectively being accused of stealing from the public purse.

  27. With respect, it seems to me that two separate issues are being conflated. Looking at each in turn:
    Domicile is a bribe, looking for fairness here simply isn’t going to be the most fruitful activity. That said, there are still aspects to it that are more absurd than others. The remittance basis is obviously one such, British born British people inheriting non-dom status for tax is another. No purpose is served by bribing those we have no.need to bribe.
    As regards your onshore, perfectly legal and disclosed (did you have a choice?) avoidance, the more artificial the arrangement, the less it reflects commercial reality, then the.more likely I am personally to describe it as theft from the public purse. However, if you would like to share the details then everyone can form a view.

  28. Very interesting revelation regarding Stuart Gulliver yesterday – his children attended school in the UK. That certainly doesn’t seem like a complete separation from the home country to me…

  29. Pingback: Waiting for Godot | Is the sky falling in?

  30. I found that today and was about to add a link here, but found you had beaten me! Thanks – it is fascinating.

    “This [Finance Act 1914] is the first time domicile became relevant for income tax, although it was then relevant for estate duty.” (p.27)

Comments are closed.