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Asian non-domiciles threaten exodus

Monday, 18 February 2008

Forty-two per cent of South Asian 'high net worth individuals' considered non-domicile claim to be preparing to leave the UK due to the changes to the tax regime set to come into effect in April.

The central feature of the new laws is that non-domiciled individuals (non-doms) who have been UK residents in at least seven of the past nine tax years will have to pay a £30,000 charge per annum to avoid paying tax on a remittance basis on their offshore income. But there are also several, less high profile changes that have created further cause for concern.

The Grant Thornton survey, which canvassed the opinions of 50 non-UK domiciled South Asians - India, Pakistan, Sri Lanka and Bangladesh - found that an overwhelming majority of these non-doms (84 per cent) thought the annual fee was not being set at a fair rate, while 78 per cent believed they didn't have enough time to get their affairs in order in time to comply when the law changes on 6 April. Only 34 per cent of those surveyed said they would pay the new £30,000 fee.

This exodus of a sizeable chunk of the South Asian non-domicile population, which is the largest non-domiciled group in the UK today, has encouraged Grant Thornton's South Asia Group to actively lobby Government on a policy rethink through a formal submission, in view of the potential economic damage the mass departure of South Asian non-doms could create.

Anuj Chande, partner and head of Grant Thornton's South Asia group, said it was not just a case of many highly talented individuals leaving; the change in tax status was now discouraging many of the firm's clients from bringing their skills and entrepreneurial drive to the UK in the first place.

"Historically, individuals from the South Asia Community have come to the UK to set up family businesses, contributing to the UK economy though corporation tax, PAYE and national insurance, and also through the many charity projects supported by the community as a whole," Chande added.

On 6 April there are several further changes which are also set to become a significant deterrent for the non-domiciled community.

Key changes include gains made by foreign companies in the UK becoming taxable in the hands of non-dom shareholders, non-doms incurring a tax charge on UK gains made by foreign trusts, and finally a capital gains tax charge on foreign trust distributions levied irrespective of where the asset is or whether the benefit is received in the UK.

According to Chande all three will have a huge impact on the fortunes of the non-domicile community, and will need a major rethink should the Government be serious about keeping high net worth individuals in the UK long term.

"In the relentlessly competitive area of attracting talented individuals, the Government must appreciate that in 20 or 30 years it may be Singapore, Dubai or Zurich that will be home to a vast swathe of non-doms that could have been here, continuing to help our economy grow," Chande concluded.

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