The end of the non-dom regime?

With the possibility of a Labour government in place within months, our Private Wealth team examine the possible implications for non-domiciled individuals residing in the UK.?

What is domicile and non-domicile?

Domicile refers to the jurisdiction in which an individual has their roots, or that they consider to be their permanent home.?This is not to be confused with being a resident, national or citizen of a country.

A person’s domicile is a matter of fact, rather than something that they can elect or choose. To remain non-UK domiciled (‘non-dom’), an individual must be able to demonstrate that they have not made the UK their permanent home. For example, they may intend to be in the UK for work or for their children’s education and plan to leave the UK in due course.

How are non-doms taxed?

Most people in the UK pay income tax and CGT on the 'arising basis' meaning they are taxed on their worldwide income and gains. They are also subject to inheritance tax on all their assets wherever they are in the world.

By contrast, non-doms can elect to be taxed on the ‘remittance basis’, so that their non-UK income and gains are not taxed in the UK so long as they are not ‘remitted’ to the UK. Additionally, their estate for inheritance tax is limited to their UK assets.

However, this is time-limited:

·?????? Annual charges to elect for the remittance basis apply to non-doms who have been in the UK for several years; otherwise they will be taxed on the arising basis.

·?????? Once non-doms have been tax resident in the UK for 15 of 20 years they become ‘deemed domiciled’ for tax purposes. They can no longer access the remittance basis for income and gains, and their estate is no longer limited to their UK assets.

Potential changes

Labour have made clear their intention to change this regime but details are vague. The shadow Chancellor Rachel Reeves announced Labour would bring in “a modern scheme for people who are genuinely living in the UK for short periods to allow us to continue to attract top international talent”.

The existing regime could be tweaked so that the charges to access the remittance basis and/or deemed domicile apply earlier. Those who think that they have years before they become deemed domiciled may find themselves caught by this with little or no warning.

A more dramatic option would be to scrap the system entirely and replace it with a different scheme for incoming workers.

Weighing up the costs of maintaining non-dom status

In contrast to the direction of travel in the UK, many other countries have implemented or expanded beneficial tax regimes for globally mobile individuals. We may therefore see an exodus of non-doms from the UK, should a Labour Government tighten or scrap the non-dom regime. However, despite the tax implications, many current non-doms may find that the cost is outweighed by the advantages of living in the UK.

For the less footloose, who will remain in the UK at least in the short term, implementing tax planning in advance of the changes could mitigate their impact.

If you would like to discuss your options then please get in touch with Rhea Rughani or your usual contact at Child & Child.