It has been said that in order to practise safe tax planning one should always use a non-dom!
The UK has always been a preferred onshore jurisdiction for wealthy foreign individuals.
English is a global language. We have the best schools and universities. There is no wealth tax, or taxation of foreign income and gains (FIG), and only limited inheritance tax under the non-dom regime.
However, since 2008 successive governments have eroded the value of the regime.
It started with the remittance charge in 2008, ATED property tax rules in 2013, revised non-dom regime in 2017 and now the latest instalment, which basically creates a very limited welcoming package to anyone interested in holidaying in the UK for 4 years or less!
It may have been predictable, considering Labour promised to kill off the regime. But we did not expect such changes from the Conservatives.
The current regime allows non-doms, who are UK resident, to opt to use the remittance basis of taxation for 15 out of 20 tax years and provides protection for non-resident trusts.
With effect from 6 April 2025 a new regime will apply to new arrivals, who have lived outside the UK for a period of 10 consecutive years, who will benefit from full tax relief for a 4-year period on FIG arising during this 4-year period, during which time this income can be brought to the UK without an additional tax charge.
It will also apply to existing UK resident non-doms, who have been resident here for 4 years or less until the end of their 4th year of residence.
All other resident non-doms, and relevant non-resident trusts, will be taxed on all new FIG that arises from 6 April 2025, subject to a number of transitional measures that will be introduced to ‘soften the blow’ of the new regime. These include:
- A temporary 50% reduction in the personal foreign income subject to tax in 2025-26 for non-doms who will lose access to the remittance basis on 6 April 2025 and are not eligible for the new 4-year FIG exemption regime.
- Re-basing of capital assets to 5 April 2019 levels for disposals that take place after 6 April 2025 for current non-doms who have claimed the remittance basis.
- Non-doms will be able to remit foreign income and gains that arose before 6 April 2025 to the UK at a rate of 12% under a new Temporary Repatriation Facility in the tax years 2025-26 and 2026-27.
- FIG that arose in protected non-resident trusts before 6 April 2025 will not be taxed, unless distributions or benefits are paid to UK residents who have been here for more than 4 years.
The government will also consult to move inheritance tax to a residence-based system as opposed to domicile.
Non-doms claiming the remittance basis tend to have high UK incomes, a large share of which comes from employment. In total, non-doms claiming the remittance basis paid a little over £6 billion in UK income tax, National Insurance contributions and capital gains tax (find out more here). This puts them in the top bracket of taxpayers, who contribute just under 30% on all income tax revenue.
A study conducted in 2022 using data from HMRC tax records estimated that taxing non-doms’ foreign income and gains, like the income and gains of UK doms would raise £3.6 billion a year if non-doms took similar steps to UK doms to mitigate tax liability on their investment income.
The government estimate that the changes will raise £2.7 billion per year by 2028-29.
However, the real question is whether this will affect non-doms coming to the UK and providing investment, employment and spending and whether those living in the UK will decide that the recent changes are enough to make a move.
They will certainly need to consider the position with regard to all income and gains and the inevitable inheritance tax liability, if they intend to be here for any length of time and compare these with other jurisdictions, such as Italy and Spain.
We will be more than happy to assist in discussion strategies and options.
For further information, please contact:
Hed Amitai, Partner, Hill Dickinson
hed.amitai@hilldickinson.com
