LONDON (Reuters) - The number of British residents applying for a tax break that can allow them to exclude much of their income from taxation has fallen since the beginning of the financial crisis, official data show.
Britain has become the location of choice for many of Europe’s super rich because of a tax break which allows them to be physically resident in the country but “non-domiciled” for tax purposes.
For a fee of 30,000 or 50,000 pounds per year, depending on how long one has been resident in Britain, an individual with foreign ties can apply for “non-domiciled” status and be taxed only on money earned in the UK or brought into the country.
In practice, many super rich people enhance the benefit of this status by keeping even UK assets offshore, by ownership via foreign-registered vehicles.
The number of people availing of the tax break fell to 116,000 in the tax year to April 2011 from 140,000 in 2007-2008, a spokesman for the UK tax authority said.
Jason Collins, Head of Tax at Pinsent Masons, said the figures showed the government’s practice of charging for the right to avail of the tax break, introduced in 2008, and the introduction of a 50 percent upper income tax rate in 2010, had made the UK a less attractive location for the rich.
However, the tax authority spokesman said the figures were also impacted by reduced employment in the financial sector and the economic downturn generally.
He noted the number of ‘non-doms’ was still up compared with the 1997/98 tax year, when 83,000 applied for the break.
Tax campaigners say the non-domiciled system undermines confidence in the whole tax system, putting at risk compliance by ordinary people.
News reports have identified many British people who have used sometimes vague foreign connections to avail of the tax break. Accountants say a foreign-born parent can be enough to claim the status.
Successive governments have backed the system believing that attracting or retaining wealthy individuals generates additional domestic spending and encourages the rich to invest in the UK.
The status is also seen as supporting the City of London’s position as Europe’s financial capital.
Reporting by Tom Bergin; Editing by Mark Potter