Will the Labour government dilute their res-non-dom proposal?

Recent discussions have surfaced regarding the Labour government's potential dilution of their proposed reforms to the non-domiciled (non-dom) status. These reforms, which were initially claimed to increase revenue and prompt “fairness” amongst taxpayers have faced significant scrutiny from various economic experts and stakeholders.

What are the concerns about Labour’s current non-dom proposals?

One of the key concerns for many high-net-worth individuals are the changes to inheritance tax (IHT), particularly its potentially retrospective application. Several studies have highlighted the IHT proposals as the main driver for a decision to leave the UK. This arises in two areas, the first being the ten-year tail and the second the application to exclude property trusts.?

Currently, non-doms can fall outside of the IHT net four years after leaving the UK. Labour's initial proposal suggested extending this period to ten years, a move that has sparked concern among high-net-worth individuals and their advisors. The extended period, particularly combined with the IHT proposals for trusts would introduce substantial administrative challenges and deter wealthy individuals from staying in the UK longer term or moving to the UK in the first place.

The potential for diluting the non-dom proposal has been partly driven by the Treasury concerns that the proposed changes might not yield the anticipated revenue and could instead cost the economy approximately ￡0.9 billion, contrary to the expected ￡3 billion gain. This revelation has garnered attention across the political spectrum, with both left-wing and right-wing media acknowledging the possible economic ramifications.

In light of these findings, Labour may reconsider the extent of their non-dom reforms. The aim would be to strike a balance between closing tax loopholes and maintaining the UK’s attractiveness to high-net-worth individuals. Adjustments to the proposal could include a shorter IHT tail or alternative measures to increase revenue without prompting an exodus of wealthy residents.

The debate around the non-dom status reform highlights the complexities of tax policy, especially concerning international individuals with substantial assets. As the Labour government navigates these challenges, the broader implications for the UK’s economy and its competitive standing in the global market remain a central focus.

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Simplicity and stability in non-dom proposals?

Our view is that the government should reconsider its current non-dom proposal, with a focus on a more balanced approach. There is no doubt that the remittance basis requires reform. It is too complicated and deters funds from being brought to the UK. ?The other key points include extending the four-year window on arrival for income tax and capital gains tax, potentially with the implementation of a charge for the privilege and a complete review of the IHT proposals.?

The non-dom proposals put forward should follow a proper consultation with industry professionals to ensure the reforms are practical and do not drive high-net-worth individuals away from the UK. Simplifying the tax rules and providing stability will encourage investment and economic contribution from non-doms, ultimately benefiting the UK economy.

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How can Ocorian help ahead of the upcoming non-dom changes?

It is important to remember the impact of these changes depends on your unique circumstances. Our Private Client team has extensive experience navigating complex tax situations. We can help you explore personalised strategies to minimise the impact on your family's finances. Don't wait – reach out to the Ocorian team to discuss in more detail.

Alternatively, do take a look at our dedicated res-non-dom support hub , which hosts a number of useful tools and regular updates as they become available. ?

This article was originally published on Will the Labour government dilute their res-non-dom proposal?