Figures published in July by HMRC show the amount of tax paid by people with non-dom status was £8.9bn in the financial year 2022-23, which is the highest level since rules were changed in 2017.
There was also an increase in the number of UK non-doms to 74,000 from 68,900 in 2021/22.
There is currently a lot of speculation within the wealth community about what non-doms are planning following the changes announced by the previous Government in the Spring Budget (March 2024) and additional changes which were pledged in the Labour Party manifesto, who have now formed the new government.
And following on from the King’s Speech (17th July), we expect our clients will be asking us where are we now, has anything changed?
The answer is we probably won’t know anything more until the Autumn Statement which is expected mid-late September. There is a certain amount of planning which non-doms could be doing now and which we are doing with our clients. This will allow them to make an informed decision based on their own individual circumstances once the finer details and timing is known.
Non-doms who were already planning a move from the UK are likely to have decided to speed up the process, which I think accounts for those who are reported to be leaving the UK.
However, uprooting your life, your family, leaving your home, not to mention deciding what to do with your business and financial interests takes time. And you don’t want to jump out of the ‘frying pan and into the fire’ given current global politics. Without listing them all there is a new left leaning government in France and speculation of much higher wealth taxes in the future. The US Election now has an amount of uncertainty about it and a very divided electorate.
Whilst Italy is considered an attractive location, many non-doms we have spoken to have expressed concerns about the need for 100% disclosure on worldwide financial interests, Every country has its pros and cons and tax rules that may also change over time.
It is important to focus on what we do know now which hasn’t really changed since April.
A number of temporary provisions were originally announced in the Spring Budget to help those currently living in the UK to manage their affairs in an efficient way after the new non-dom rule changes.
The Labour party has confirmed it will remove the proposed 50% tax deduction on foreign income in 2025-26. It also said offshore trusts will in the future be subject to UK IHT (the current rules are to retain the IHT exclusion for trusts set up before April 2025).
Will there be winners and losers?
Possibly as it remains to be seen. Anyone who has previously been domiciled or resident in the UK should be asking themselves, am I now back in the net for Inheritance Tax (IHT) or am I now out of it for good – we suspect there might be some surprises here.
If the new government chooses to get rid of domicile for taxation purposes, then residence will be the determining factor and there may be some unexpected ‘winners’ and ‘losers’. If for example you have been outside the UK but planned to return, you may now have unforeseen tax implications, whilst if you are British and have retained links here but lived overseas for a long time, you may now escape IHT on your Estate where it would currently be payable.
We believe a challenge for the government would be to reach those people who have left the UK already as they may think that future UK tax changes won’t affect them. Under current rules, an absence of five years could be enough to escape the UK IHT net. Unfortunately, the proposed rules might drag them back into UK IHT for up to ten years after they have left the UK. For those who are elderly or suffering from a life limiting disease then this is worrying as we don’t yet know whether people who have already left will be included in the changes. It is also unclear how this could be policed.
It is crucial to stay ahead of the evolving landscape surrounding non-domicile status in the UK. The upcoming changes could have significant implications for your financial planning and tax obligations. Our team of experts is here to guide you through these complexities and ensure you’re fully prepared. Contact Alice Pearson or a member of the Private Client team to discuss your situation and ensure you’re ready for the changes ahead.
