The future of the Non-dom remittance basis – stay or go?

When it recently came back into the media spot light, we shared an article looking at the history of the UK’s non-dom remittance basis regime.?It was clear that the regime has been subject to?change for far longer than many of us realised.?Now at a time of ongoing political uncertainty, we wonder what this could mean for the regime and where it leaves the UK in an increasingly competitive global tax environment.

It was perhaps unsurprising that, when HMRC published its latest data on non-doms last month, the population filing UK tax returns for 2020/21 on that basis fell by 11%, compared to the prior year, and now stands at 68,300 individuals.?There are likely many attributable factors to this, including more restrictive COVID travel and the fact that other competitive tax regimes are now well known?(see Italy, Portugal etc), but the increased levels of complexity and the cost associated with accessing and operating the UK’s remittance basis should not be overlooked either.

So the question is whether this downward trend will continue.?

The answer is maybe, particularly whilst political uncertainty remains.?Increasingly for clients, certainty is an important factor when assessing where to be based.?This is something that has historically played in the UK’s favour compared to other less politically stable locations.?Emphasising the desire for certainty, some non-dom clients are now choosing to take action to establish Protected Trusts (hoping to “lock-in” some of the benefits) even though there is no immediate / published prospect of the remittance basis ending.

We can’t pretend though that the UK doesn’t continue to have a lot going for it, even without the remittance basis.?Staying on the tax theme, in the context of our European neighbours, the UK’s top rate of income tax of 45% sits surprising low in the rankings of the highest income tax rates - number 17, behind Spain, France, Germany and Italy to name a few.?

Although BREXIT has arguably created a sense of divide with Europe, which is a point clients are reflecting on when thinking about where to be based, the UK also remains extremely well connected for most professions, sustaining it’s position against other European finance and business centres.?In the recent statistics published, 72% of non-doms are based in London.?Practically speaking, immigration is a current hot topic with the loss of the UK’s investor VISA regime earlier this year.?Arriving to live in the UK is now more complex for many families than it has been for some time.?So whilst there are many positives to support the UK as a destination of choice, these need to remain in clear focus for the tax policy decision makers with a need for a broader strategy to retain and attract talent to the UK.

Getting back to the future of the non-dom regime, its ability to exist feels more politically balanced than it has for some time.?There are arguments made for the benefits that having UHNW individuals living in the UK bring for broader society (non-doms contributed ￡7.9bn in tax and NI in 202/21) and the risk they could flee if non-dom status is done away with, balanced finely against those arguing the remittance basis deprives the tax base in the UK, given the amounts kept outside the UK must far exceed the tax collected.?The reality is that there is little data to convincingly support either view.?

We have all seen warnings in the past with previous non-dom reform that clients will get up and leave, and although some do, for many we are still advising them years later.?So could this time be any different??What can be said, based on experience, is that individuals and families are increasingly flexible in terms of their global location – more so than many of us on living the 9-5 dream could ever conceive.?In addition, there has never been as much global competition to market tax attractive regimes to foreign nationals vying for them to move to alternative locations.

We see freedom of movement every day with enquires from clients looking at both inbound to, and outbound moves from, the UK.?Whatever the UK does in terms of the remittance basis, in a global society where UHNW individuals are seen as an attractive prospect, the UK cannot afford to take anything for granted.?If the remittance basis were to evolve or end in the future, the UK needs to ensure that its position on all other fronts remains competitive and compelling and the broader picture is articulated clearly and loudly, so it doesn’t see a drain on global talent.