Chancellor of the exchequer Jeremy Hunt announced ‘non-dom’ tax rules will be eliminated after the first four years of a non-domiciled resident living in the UK, after which they will face the same taxes as other UK residents.
While new arrivals will pay no additional tax for the first four years, after this period, they will be taxed the same as other UK residents. Hunt said transitional arrangements will be put in place for those under the current regime, including a two-year transition period.
Hunt said the change in regulation will bring in £2.7bn each year.
Non-domiciled tax currently allows some residents to claim their permanent home abroad, which excludes them from paying tax on money made outside the UK while still living in the country. ‘Non-doms’ can also invest money offshore, which remains untaxed in the UK. This can be done on a remittance basis, which can be claimed on income over £2,000 but can cause a loss of tax-free allowances for income tax and capital gains tax.
After non-doms have been in the UK for seven of the past nine tax years, they will be charged £30,000 annually for this remittance and £60,000 after being in the UK for 12 of the past 14 tax years.
A study by the London School of Economics in 2022 showed a complete elimination of tax loop on this income would bring over £3.2bn in tax revenue each year. On average, it saves ‘non-doms’ over £125,000 through income and capital gains tax each year, according to the study, resulting in an average £420,000 left unreported. In addition, 55% of unreported income and gains belong to those who have lived in the UK for less than five years.
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One of the main concerns of ousting the regulation is non-doms leaving the UK without the rule in place. The London School of Economics research estimated that .3%, or less than 100 people, would leave the country because of this change.
David Burgherr, research officer at London School of Economics’ International Inequalities Institute, said one in 16 non-doms report no income in the UK, and averaged earning £450,000 abroad.
Claire Trott, divisional director for retirement and holistic planning at St James’s Place, said: “The scrapping of the non-dom status is estimated to bring over £2.7bn of extra tax revenue which will be used to fund the other tax cuts announced in the Budget.
“Moreover, this was one of Labour’s proposed changes so the Conservatives taking this “tax windfall” from Labour’s calculations will certainly hamper their proposed spending. If Labour do win the next election, they will have to consider what to do about this budget hole the Conservatives will have left them. They will have to choose whether to change where the saving is spent, or to just try and fulfil their spending plans in other ways.”
Sophie Dowretzsky, partner at law firm Charles Russell Speechlys, said she found the abandonment of the regime “slightly surprising” because of Hunt’s previous attitude towards scaling it back.
“Whilst he has promised an alternative system that is fairer and competitive, an absolutely crucial aspect of any changes is to ensure that they are clear, bring stability and create an attractive regime for wealth creators considering a move to the UK,” Dowretzsky said.
“The details of the new proposed regime are yet to be clear, but reducing the time period for which there are tax advantages for new arrivals to 4 years seems uncompetitive. On the upside it is good news that it seems the new rules will encourage inward investment of offshore income and gains which currently cannot be easily and tax efficiently invested onshore. A key question is how transitional arrangements will work.”
This article was written for our sister title Portfolio Adviser
