Update on proposed changes to the ‘Non-dom’ tax regime - Lubbock Fine (2024)

Major changes to the tax rules applying to individuals domiciled outside the UK (‘non-doms’) were proposed in Jeremy Hunt’s 6 March 2024 Budget announcement. This was covered in our initial blog on non-dom changes.

However, no legislation was published with the Finance Bill, and additional uncertainty was created with Rishi Sunak’s announcement on 22 May that a General Election will take place on 4 July 2024. This included the late cancellation of the last ‘listening events’ whereby the government had invited comments on the proposals.

What else has been said?

Other than the scheduling of the above ‘listening events’ by HMRC, little more has been heard from the Government or the Conservatives on this area. Before the election date was confirmed, there was speculation about potential changes to their Budget announcement, principally in relation to the possible introduction of an annual charge (similar to the Italian fixed fee regime), instead of individuals paying UK tax on their foreign income and capital gains.

The Conservatives’ General Election Manifesto was published on 11 June but unfortunately there was no mention of any of any changes to the non-domiciled regime in the document (in fact no mention of non-doms at all).

Labour (who are still ahead in all the opinion polls at the time of publication, and so forecast to form the next government) had previously criticised the Conservative proposals as being too generous, suggesting that they would raise more taxes in this area. The Labour Manifesto was published on 13 June which states that they would “abolish the non-dom status once and for all” and also “end the use of offshore trusts to avoid inheritance tax”, without providing any further detail.

So where are we now?

Based on the Budget and Labour’s announcements, many tax commentators anticipate that the final updated rules for non-doms will broadly be similar to those announced by the Conservatives in their 6 March 2024 Budget, with some possible reduction in the transitional reliefs under Labour. The revised Inheritance tax (IHT) regime is far more uncertain especially regarding offshore trusts set up by individuals when they were non-UK domiciled (i.e. excluded property trusts). While originally it seemed that there may be a final opportunity to create IHT-favoured Offshore Trusts, under Labour it‘s unclear whether even existing Trusts will retain any such benefits.

On the other hand, there’s been increasing scrutiny of both parties’ projections of the tax that they will be able to raise from any changes, in particular due to the risk of too many non-doms simply deciding to leave the UK. Given the wider contributions that non-doms make to the UK economy (such as through their general spending and investments in property or business), this might encourage further changes to the new regime that is eventually implemented.

Neither party has made any commitment to holding an Emergency Budget immediately after the election. Therefore, it’s more likely that the next Budget statement will be announced in October / November 2024. It remains to be seen whether any Budget announcements, in relation to changes to the non-domiciliary and IHT laws, will take effect either from 6 April 2025 or possibly later (particularly if consultations are announced in the interim), or even possibly from the date of the Budget.

Although nothing can be guaranteed, it’s to be hoped that the next government will wish to ensure that any new regime is both robust and able to deliver on their objectives, avoiding sudden announcements with immediate changes. However, while this may allow some time for non-doms to properly consider the impact, some groundwork is sensible now.

What are the next steps?

So what should non-doms be thinking about in the run up to the election and any subsequent concrete announcements?

Review current structures

Individuals should review their current structures, in particular those individuals who created offshore trusts when they were non-UK domiciled. However, we would generally advise against taking any action until some clarity has been received in relation to the changes to the tax laws. Hopefully, individuals will be given sufficient time to implement any planning that they consider appropriate for their particular requirements.

Possible planning options

Notwithstanding the fact that we’re waiting for clarity on what changes may be enacted, there are however, certain areas of planning that UK resident non-doms may wish to start thinking about now. We have listed certain scenarios below, but above all else you should consider what your medium to longer terms plans are, and then look to build financial and tax plans around those.

  • Individuals who can claim the remittance basis in 2024/25.

Consider the extent that it may be possible to accelerate the receipt of overseas income and gains into the current tax year (to 5 April 2025), to enable a remittance basis claim. Otherwise, such income / gains may be taxed on the arising basis post 5 April 2025.

Such acceleration may also enable you to be to claim Temporary Repatriation Facility (TRF) relief should such income / gains be remitted in the two tax years to 5 April 2027 (subject to publication of any TRF legislation).

Settlors or beneficiaries of offshore trusts might ask the trustees to consider making distributions to enable them to claim the remittance basis in 2024/25. The TRF facility will likely not be available for any such distributions.

  • Individuals who have transferred assets to trusts (i.e. Settlors) but will not qualify for any new FIG regime.

For Settlors of such trusts, unless they are happy to be excluded from the class of beneficiaries going forward, they may wish to ask the trustees (or any underlying investment companies) to consider investing into offshore life policies or other structures that may to defer the realisation of income or gains. Investment considerations, as well as costs and likely future need for distributions will all need to be balanced.

For some, any remaining tax and non-tax benefits of such Trusts may need to be reviewed against the costs and other disadvantages that they bring.

  • Individuals who are beneficiaries (but not Settlors) of offshore trusts who will not qualify for the new FIG regime.

Such individuals (who also are not currently deemed domiciled), could ask the trustees to make capital payments (and/or generate gains, depending on the trusts position) to them in the current tax year while the remittance basis is available.

  • Individuals who are considering creating an offshore trust

Individuals who are considering creating an offshore trust, primarily for IHT reasons, should almost certainly wait for more clarity before transferring any assets. Of course, if clarity were to emerge that such planning may be profitable, there may be a small timeline to implement any new structure, so it may be sensible to have advisers and trustees primed in advance.

  • Individuals who can be internationally mobile

Some individuals may well consider reducing their ties to the UK and so becoming non-resident with effect from 2025/26 or a later date to minimise the impact of these changes, where this fits with their wider lifestyle choices. How many non-doms fall into this category will undoubtedly be a major factor in whether any new regime meets its objectives and has a positive or negative effect on the UK as a whole.

Given that wealthy non-doms are usually mobile by nature and have existing connections to other countries, we expect that many will choose this course of action if any Government changes are too restrictive. We’re well placed to advise on how to become, and remain, non-UK tax resident. By working with our international network, Russell Bedford International, we can help you relocate your tax residence to another country with an acceptable tax regime.

  • Inheritance tax exposure

The potential changes to inheritance tax are perhaps the biggest concern for non-doms, particularly if trust protections will be lost. This will likely be a deal breaker for them in terms of remaining in the UK.

If restrictive rules are introduced at short notice, a short-term measure could be to obtain a life insurance policy to cover any potential IHT charge in case of death. Generally, such policies are not too expensive if the individual is not in the later stages of life and the policy is for a fixed term period. The individual would then have some breathing space to consider his or her options and implement a plan, during that fixed period.

How we can help

We would be happy to discuss how you may be impacted by these changes and the possible planning options that may best fit your personal circ*mstances. Please get in touch with Tax Partner, Phil Moss (philmoss@lubbockfine.co.uk) or Director, Aidan Meade (aidanmeade@lubbockfine.co.uk).

Update on proposed changes to the ‘Non-dom’ tax regime - Lubbock Fine (2024)

FAQs

What is the non-Dom scheme? ›

Non-doms are individuals whose permanent home, or domicile, is considered to be outside the UK. The current non-dom regime is a favourable tax regime which allows non-doms who are UK resident to opt to use the remittance basis of taxation.

What is non domiciled status in the UK? ›

What is a non-dom? "Non-dom" describes a UK resident whose permanent home - or domicile - for tax purposes is outside the UK. It refers to a person's tax status, and has nothing to do with their nationality, citizenship or resident status - although it can be affected by these factors.

What is the non-Dom regime in Switzerland? ›

In most cantons, this special regime is available to non-Swiss nationals who do not work in Switzerland. Instead of paying taxes on global income and assets, it uses the taxpayer's living expenses as a surrogate tax base.

What is the meaning of non domiciled? ›

Meaning of non-domiciled in English

(of a person) living in a country in which they are not domiciled (= it is not their legal home), especially when this means that they pay less tax: London has the largest community of non-domiciled tycoons in the world.

What does being domiciled mean? ›

Domicile is physically living somewhere (or. lived somewhere) and intent to remain (or intent to return if you're military). You CANNOT have a domicile. for a state you have never lived in. You must have physically resided in a certain state to gain its benefits and.

How to lose deemed domicile status? ›

Your deemed domicile status falls away for IHT purposes once you have been non-UK resident for more than four consecutive tax years or have permanently left the UK to establish a domicile of choice elsewhere.

What is a permanent home for tax purposes? ›

A permanent residence is the town you consider home and periodically return to between assignments, staying with relatives or perhaps renting a new apartment each time you return. A tax home goes another step further: It's where you maintain a livable residence.

How many days can a non-dom stay in the UK? ›

46 Days - If you spend less than 46 days in the UK in any year, you will maintain your non resident status (provided you have not been classed as a UK resident for the previous 3 tax years. If you have had non resident status for less than this, you must spend less than 16 days in the UK).

What is a non dom country? ›

Definition of Non-Domiciled: To explain in simple terms, we can define non-dom as a resident in the UK for tax purposes but consider another country as their permanent home, which is also called domicile.

Why is Switzerland the most free? ›

Switzerland is often at or near the top in international rankings of civil liberties and political rights observance. Switzerland places human rights at the core of the nation's value system, as represented in its Federal Constitution.

What is the non Dom regime in Italy? ›

Introduced by the 2017 Budget Law (Law no. 232/2016), the optional “non-dom” (i.e., non-domiciled) tax regime aims to attract foreign taxpayers to Italy. "Income generated overseas will be subject, for each tax period, to a substitute tax set at a flat rate of €100,000."

What is the non domicile tax loophole in the UK? ›

The most lucrative loophole is a provision that gives non-doms until April 2025 to put overseas funds in a trust, after which they are liable for UK income and capital gains taxes, but exempt from inheritance tax.

How do I know if I am UK domiciled? ›

However, if you were originally born in the UK or if you remain in the UK for more than 15 years, then you will be deemed to be domiciled in the UK (see below).

What is the difference between UK resident and UK domiciled? ›

Overview. Tax residence is a short-term concept and is determined for each tax year separately, broadly reflecting where you reside. Domicile is more long-term and refers to the country which you consider to be your permanent 'home' over the course of your life.

How many people have non domicile status in UK? ›

There were an estimated 68,800 non-doms in the UK in 2022, according to HM Revenue & Customs, the UK's tax collecting authority. Non-doms are people living in the UK but who claim to have a permanent residence in another country.

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