Non-dom applications cut by 25%

Higher taxes aimed at raising millions in tax revenue from non-domiciled residents have slowed down the number of wealthy business people moving to the UK, a study has shown.

Treasury data obtained under the Freedom of Information Act and a study by Cass Business school of 25 leading wealth advisers indicates tax hikes introduced by the Finance Act 2008 have lead to approximately 25% fewer non-dom applications.

The Finance Act imposed a £30,000 fee on non-doms resident in the UK for seven years or more, who wish to remain taxed only on their UK income.

Preliminary figures from Revenue & Customs showed 4,200 people paid the charge for the 2008-09 tax year, in line with Treasury expectations, the Financial Times reports.

However, estimates a further 14,000 would start paying UK tax on offshore income and over the long term only 3,000 non-doms would choose to leave the UK are proving to be out of kilter with the actual figures.

While the number of non-doms in Britain has been growing at about 4% annually in recent years, evidence suggests this is slowing quickly, with 2% of non-doms having already quit the UK and many others reducing the time they spend here.

In the survey of wealth advisers, a large majority said up to 25% of their clients had decided not to be UK tax resident over the medium term. One in four of the advisers said 25-50% of their clients had sought advice about changing their residency.

More than half of advisers said up to a quarter of their non-dom clients had reduced the time spent in Britain in order to stop being UK resident.

Non-doms, who currently number about 140,000, spend more than £19bn in Britain each year. They also contribute £8.3bn in taxes, £4.5bn in income tax and £3.75bn in VAT and stamp duty.

The study suggests the loss of non-doms will mean the changes, designed to raise an extra £650m, will result in an immediate reduction in potential tax contribution of £166m.

Andrew Rodger, Stonehage executive director, says: "The stated intention of the government was to increase tax from resident non-doms and simplify the regime.

"Our survey shows that the rules are unattractive and that non-doms are leaving the UK or not arriving any more, resulting in a tax loss for the Treasury within a relatively short time."