The Chancellor of the Exchequer’s announcement that the United Kingdom’s non-dom regime will come to an end should have taken nobody by surprise. The decision by Jeremy Hunt to phase out the controversial tax system puts a full stop at the end of an argument that has flared up periodically over a number of years. The political durability of the non-dom regime has long been questionable and now it has finally been marked for extinction.
The non-dom regime has a storied history, dating back to 1799, but those taking advantage of it in the modern era have no time for sentiment. The rules as they stand allow UK residents who have their domicile outside of the country to only pay tax on their foreign income and capital gains if they are remitted into the country. The foreign wealth of non-doms is also exempt from inheritance tax. The first seven years of UK residency with non-dom status come without a fee, but if you have been a non-dom for seven of the previous nine tax years, there is a GBP 30k annual charge. This jumps to GBP 60k annually for those that have been non-doms for 12 of the last 14 tax years. The status is lost when someone has been a UK resident for 15 of the previous 20 tax years.
A change of status
This system will be replaced from April, 2025, with a new regime that does not require new arrivals to pay tax on their foreign income and gains for their first four years of UK residency. After that initial grace period, the newcomers will be subject to the same tax rules as the rest of the population. Crucially, for those currently benefitting from the non-dom regime, there will be a two-year transition period. This transitional relief will help existing resident non-doms manage the change, allowing time for a reorganisation of their assets. The UK government hopes that during this period individuals will be encouraged to bring wealth earned overseas to the UK.
Anyone currently using the non-dom regime should immediately begin thinking about the most efficient way of restructuring their wealth. Every individual or family will be facing a different challenge with differing levels of complexity. Some may find the transition is a fairly simple one, while others could be looking at a far deeper reorganisation. Transitional planning will likely cut across areas such as taxation, investments, property, estate planning and offshore trusts. Ensuring you have access to expertise in all these areas will be key to making the right decisions.
Should I stay or should I go?
The question of whether the UK remains an attractive destination once the rules change will have to be tackled by all non-doms and the answer will naturally have repercussions when it comes to wealth planning. Many will view the new regime as less attractive, even if simpler than what it will replace. High-net-worth and ultra-high-net-worth individuals choosing the UK as a residency destination in future will more easily be able to understand their tax obligations but may well conclude there are more attractive jurisdictions elsewhere.
The scrapping of the non-dom regime has certainly grabbed headlines, but ultimately it is part of a wider picture when it comes to how wealth is treated in the UK. For those in the wealth management business, this continues a pattern where concerns continue to surface about the attractiveness of the UK as stable, predictable and welcoming jurisdiction for global wealth creators. These questions will not be allayed by a likely incoming Labour government. An increasing number of resident non-doms are seriously considering moving away from the country with destinations like Italy proving to be popular alternatives. The uncertainty of what a new government could bring means some are taking the option of moving more seriously. Wealthy families will always have choices and jurisdictions that are more fiscally welcoming will benefit.
The announcement around the replacement of the non-dom regime means the speculation can stop and the preparation can begin. Something that has been discussed for years has now come to fruition. And no matter what the future brings, a robust discussion with your wealth manager and the implementation of an informed financial plan is essential to navigating what comes next.
Ready to navigate the non-dom regime changes with confidence? To speak to Iain Tait or to a member of our Tax & Advanced Planning Team contact us at +44 207 396 3200 or via email at invest@londonandcapital.com.
“London and Capital Group works with HNW and UHNW individuals to provide an integrated wealth management solution which includes financial planning, tailored investment management and multi-currency reporting.
With offices in London and Barcelona and a dedicated team who specialise in ex-pat Americans, they are positioned to provide a truly borderless wealth management solution.”
Please visit the firm link to site
