The controversy surrounding Lord Ashcroft’s donations to the Conservative party has thrust the issue of non-domicile squarely back into the limelight. It has also served to remind those entitled to claim non-dom status who are currently not doing so that they could cut their tax bill.
If you start to look closely at the domicile rules, such as they are, it becomes apparent that millions of people in this country could claim non-dom status if they wanted to. You inherit the domicile of your father, or your mother if they separate and she brings you up.
You do not have to have been born overseas. Zac Gold smith, who came out of the non-dom closet in November last year was able to inherit his non-dom status from his father, even though he was born in Westminster, grew up and went to school in Richmond, has lived there most of his life and is trying to become its MP.
Of course Labour have their non-doms too – business magnate Lord Paul has been a peer since 1996 and has been avoiding tax in the UK by declaring non-dom status for at least some of the period since then.
But I think most people would not be that surprised that someone like Lord Paul, who was born overseas, is able to claim non-dom status.
What I think is more surprising is that somebody born in this country and living here can avoid paying tax.
The law is hazy as to how far back you can go when it comes to determining how far domic ile is passed down. If Zac Goldsmith is not domiciled in the UK for tax purposes, then does that mean his children can claim non-dom status on account of his status? And does the same apply for their children?
Taking this principle to its absurd conclusion, anybody could argue their forefathers have steadfastly retained a foreign domicile since coming to these islands as a Pict, Celt or Saxon.
HM Revenue & Customs might laugh at such a suggestion but one accountant I have spoken to on the issue believes that a foreign domicile could survive more than one generation born in the UK.
Either way, this issue highlights the confusing and seemingly arbitrary approach that HMRC takes to granting non-dom status.
I recently asked HMRC for details of what the criteria are for non-dom status. The answer is that there are no clear and strict regulations, that the rules have been built up over the years through case law and that it treats each case on its own merits.
Not having clear guidelines probably serves HMRC’s purposes well. Why would it want to make it easy for people to claim non-dom status when
so many people are entitled to but are not currently?
Yet you do not have to be a millionaire to benefit from nondom status. There are a number of situations where even those with relatively modest overseas earnings can benefit. While paying £30,000 a year to claim non-dom status on remittance earnings may exclude 99 per cent of the population, that charge only kicks in after seven years. That gives all non-doms coming to the UK seven years of tax-free overseas earnings.
There is also the £2,000 income a year from offshore earnings that non-doms across the board are entitled to. With interest rates where they
are at the moment, that could cover a considerable amount of cash held on deposit in offshore accounts.
Add to that the inheritance tax benefits that can be achieved through non-dom status and it would not be surprising to see an upswing in the numbers of those claiming non-dom status. Those for whom it is worth claiming non-dom status will remain a tiny fraction of the population, without even factoring in the hassle of a potential HMRC investigation. But despite this, where politicians lead, more are sure to follow.
John Greenwood is editor of Corporate Adviser