Changes to UK non-dom rules could result in wealthy elite moving their tax residence to Ireland

Ireland stands to gain significantly from potential changes to the UK tax system should a Labour Party government be elected in the next year, as polls are predicting. The party is committed to amending the country’s current tax regime for non-domiciled individuals (non-doms).

Ireland is in line to be a beneficiary due to its proximity and similar tax regime for non-doms.

However, any change to the Irish system could mean the Republic misses out on this potential windfall while also suffering a loss due to high net worth individuals choosing to leave this country and relocate their tax residence to Spain, Italy, Malta, Singapore or any of the other countries that have put in place attractive tax regimes for non-doms in recent years.

In the UK at present, these individuals enjoy the remittance basis of taxation. This means that they are only taxed on their UK income and capital gains, with income and gains from overseas not liable for any tax. The regime is subject to certain time limits and an annual charge of £60,000 (€70,200) for very wealthy individuals.

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In spite of these conditions, the regime remains very attractive and successive UK governments have defended it based on the economic benefits it brings.

Those benefits are considerable. Large numbers of very wealthy people from the Middle East, Russia, and other countries have availed of the remittance basis of taxation in the UK over the years.

In many cases, they have invested in London property and UK businesses. They pay tax on income and capital gains from those investments. They create employment in those businesses while the UK exchequer also receives large amounts of VAT on their day-to-day expenditure.

Of course, a Labour government may not completely abolish the status quo. The party has been careful in its language on the issue. Its latest proposals are to replace the existing rules with what it has been describing as a clear and modern system. It has yet to define what such a system might look like, however.

Nevertheless, any dilution of the current system is likely to lead to an exodus of high net worth non-doms. Already there are media reports in Britain of these individuals “packing their parachutes” in advance of the next election.

Ireland is in a good position to attract at least some of those people as our remittance regime for non-doms is arguably superior to that of the UK. There are no time limits to speak of and no annual charges.

The basic qualification for non-dom status is to be a foreign national who is tax resident in Ireland. There is no application or qualification process. It’s simply a question of ticking the appropriate box on the tax return.

As is the case with the UK system, Irish tax is only payable on overseas income remitted to this country. In other words, as long as non-doms don’t bring foreign income into Ireland they won’t pay tax on it here. In general, they bring capital into Ireland before they become tax resident here. That is “clean capital” as far as Revenue is concerned and not liable for tax. They can use this to fund investments and pay for their day-to-day living expenses.

Naturally, questions are raised about the fairness of this system with the focus of the debate being solely on the amount of income tax paid by non-doms. This misses the point as it ignores the very significant contribution made to the economy and exchequer by these individuals investing in property and businesses, and through their personal expenditure.

In some cases, they spend vast sums on acquiring and restoring properties, creating employment and paying a large amount of VAT.

Unfortunately, there is talk here of a future government abolishing or making fundamental changes to the current regime. This would be counterproductive in the extreme. It would lead many non-doms currently tax resident in Ireland to consider their situation and consider moves to more attractive locations.

Ireland has always prided itself on offering tax certainty to inward investors – our 12.5 per cent corporation tax rate is a good example. This situation is no different.

Failure to do so would see Ireland not only lose out on the substantial potential economic benefits of the presence of these individuals in this country, but we would also be passing up the opportunity to attract a new wave of non-dom wealth from the UK.

Alan Murray is a tax partner with Mazars