With the next general election due to take place by January 2025, speculation is rife as to whether significant reforms will be made to the UK tax regime.
The current laws applicable to individuals that are UK tax resident but non-UK domiciled (non-doms) have, in particular, been subject to scrutiny.
Ahead of the election, it’s helpful to reflect on the discussions surrounding the policies of the Conservative Party and Labour Party, and how reforms to the existing legislation may impact non-doms living in the UK.
What is the current tax policy for UK non-doms?
Most UK tax residents are taxed on the arising basis, which means they are liable to UK tax on their worldwide income and gains.
However, those who are UK tax resident but non-dom can choose to be taxed on the remittance basis of taxation as opposed to the usual arising basis. Those claiming the remittance basis will be subject to UK tax on their UK source income and gains, but only liable to UK tax on their foreign income and gains that are remitted to or enjoyed in the UK.
A consequence of claiming the remittance basis is that the individual will lose their entitlement to the personal allowance and capital gains tax annual exempt amount for the tax year that the claim is made. There’s no charge to use the remittance basis until an individual has been UK resident for more than seven out of the previous nine tax years. After that, it costs £30,000 each year to claim the remittance basis. This charge increases to £60,000 once an individual has been resident for more than 12 years.
Once an individual has been UK tax resident for 15 out of the previous 20 tax years, they’ll be deemed-domiciled in the UK for tax purposes and no longer able to claim the remittance basis.
Non-doms are also only subject to inheritance tax on their UK situs assets, whereas individuals domiciled in the UK (including those who are deemed-domiciled for tax purposes) are subject to inheritance tax on their worldwide assets (although reliefs may apply). This is the case, regardless of where the individual is resident at the date of death.
There are also differences in the way in which anti-avoidance provisions are applied to non-UK domiciled individuals, particularly in respect of trusts. If you are a beneficiary of a trust or are considering setting up a trust, seeking UK tax advice is vital.
Will there be changes to the UK tax regime?
The Labour Party has pledged to replace the current non-dom tax regime and introduce a shorter-term scheme for temporary visitors to the UK. No details have been given on the operation of this scheme, although it’s possible that they’d look at other jurisdictions for inspiration. For example, the proposed rules may mirror the regime in France or Canada, which provide partial exemptions from tax to temporary residents (up to eight years and five years respectively).
Reforms of this nature could result in those who currently benefit from non-dom status becoming subject to UK income tax, capital gains tax and inheritance tax on their worldwide assets much sooner than expected.
UK shadow chancellor Rachel Reeves has recently commented that the Labour Party has no plans to introduce a wealth tax, increase the current rates of capital gains tax, or put up the top rate of income tax (although no formal policy has been announced).It has, however, been speculated in the media that reforms may be made to two of the existing inheritance tax exemptions, Business Property Relief (BPR) and Agricultural Property Relief (APR). Again, the Labour party have not formally commented on making such reforms.
While the Conservative Party have not yet committed to any UK tax reforms, it has been reported that they are considering reducing or even abolishing UK inheritance tax. We may hear further details of the government’s plans when the Chancellor gives his Autumn Statement on 22 November 2023.
When it comes to the taxation of non-doms in the UK, the Conservative Party has shown a more favourable attitude to the application of the remittance basis. However, the Conservative government have not ruled out the possibility of reform and are facing significant pressure from the opposition to review the benefits of the current regime.
Should I leave the UK for tax purposes?
In light of the uncertainty around the UK tax regime, many individuals are considering the option of relocating to another jurisdiction. If you’re thinking about moving abroad, there are many factors to take into account:
- Does the jurisdiction you are considering suit your family’s needs? Key considerations for moving to or remaining in the UK include high standards of schooling and education at all levels, relatively high standards of personal safety for a large, developed economy, use of English as a first language, and a combination of a rich traditional and international culture. In many cases, these factors will be the most impactful on family happiness and success.
- What is the tax regime? Whether you’re looking for a tax advantaged jurisdiction, or simply one with more certainty, it’s important to get specific advice on how you’ll be taxed once a resident there.
- Will you need a visa or residency permit? It’s also important to understand if and how you can become a resident.
- When will you cease to become UK tax resident? This may be the end of the tax year in which you leave (ie 5 April) or could be earlier if you qualify for split year treatment. Further information on the UK’s Statutory Residence Test can be found here.
- Can you remain non-UK tax resident? Individuals are limited on how much time they can spend in the UK without being considered UK resident. This varies depending on an individual’s circumstances. If you’re thinking of moving abroad, it’s important to consider how much time you’ll want to spend in the UK and if it’s feasible to become non-resident.
How we can help
We provide advice and support to UK non-doms, and we are also part of Nexia, a network of independent accounting and consulting firms that operate internationally in over 122 countries. This means we can provide you with multi-jurisdictional support to find the right solution.
If you’d like to understand more about this topic and the options available to you, please get in touch with Alexandra Britton-Davis.