The changes confirmed by the Chancellor to the Resident Non-Domicile Regime brings months of uncertainty for UK resident non-domiciled individuals to an end, but could see non-dots either the UK to more favourably taxed jurisdictions, undermining Labour’s projected tax revenues, say experts.
The Budget document says: ‘The government will legislate to abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler and internationally competitive residence-based regime, which will take effect from 6 April 2025. Individuals who opt-in to the regime will not pay UK tax on foreign income and gains (FIG) for the first four years
of tax residence. From 6 April 2025 the government will introduce a new residence- based system for Inheritance Tax (IHT), ending the use of offshore trusts to shelter assets from IHT, and scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime.’
“Labour seems to have largely adopted what they had proposed previously,” say Matthew Sperry, Private Wealth Partner at Katten Muchin Rosenman LLP. ” This includes no grandfathering for trusts that were IHT protected, meaning foreigners resident in the UK for 10 years will be fully exposed to IHT – including those that settled trusts that were IHT exempt under current law.
“I fully expect that this news will hasten the exit for many non-doms that were advised to postpone any moves until after this budget. Labour has ignored those that have warned that this move would eviscerate the non-dom tax base.
“The Labour plan makes the US even more attractive for global ultra-high net worth wealth as pre-arrival trusts can be used to eliminate exposure to US estate tax, and US income and capital gains rates are lower than the UK. As much as I love the UK, this places the US, Italy, Switzerland, the UAE and other global jurisdictions in a much stronger position in competing for UHNW wealth and investment in the coming years.”
Brendan Harper, Head of HNW Technical Services at Utmost International, echoed those sentiments. He said: “With the scrapping of the regime, if non-domiciled individuals decide they want to live in the UK past four years they will need a long-term solution and alternative strategies to manage and protect their wealth effectively. For many, they may need to think beyond establishing trusts in order to shelter offshore income and gains for the long-term and to protect their estates from inheritancetax.
“We suspect that after this announcement we will continue to hear clients talk about making plans to move to other jurisdictions such as Portugal, the UAE and Monaco where we have seen the highest levels of interest this year.
“High-Net Worth individuals and their intermediaries now have certainty to take stock of the reforms and begin adjusting their financial plans accordingly.”
Main image: nejc-soklic-yZ6MnFo5hX0-unsplash
