Recently, the UK government announced it is implementing significant changes to the taxation of non-UK domiciled individuals (non-doms). These reforms are part of a broader initiative to enhance fairness in the tax system and ensure that all individuals contribute appropriately to public finances, regardless of their domicile status.
Historically, non-doms in the UK have been able to benefit from the remittance basis of taxation, which means they only pay UK tax on their UK income and gains, as well as on any foreign income and gains they bring into the UK. This has provided a substantial tax advantage for wealthy non-doms who can keep their income abroad. However, this system has been increasingly viewed as inequitable, leading to the current reforms aimed at levelling the playing field.
The key changes in the 2024 legislation include the following:
Abolition of Permanent Non-Dom Status:
Permanent non-dom status, allowing individuals to retain their non-dom tax privileges indefinitely, will be abolished. From April 2024, individuals will be considered UK-domiciled for tax purposes after residing in the UK for 15 out of the previous 20 tax years. This change aligns with the concept of “deemed domicile” introduced in previous reforms, further tightening the rules around long-term residence.
Changes to the Remittance Basis:
The remittance basis of taxation will undergo significant modifications. The remittance basis charge, which non-doms currently pay to maintain their tax status, will be increased. Additionally, certain types of income and gains that were previously eligible for the remittance basis will be excluded, meaning they will be subject to UK tax regardless of whether they are brought into the country.
Impact on Offshore Trusts:
Offshore trusts, often used by non-doms to manage and protect assets from UK taxation, will face stricter regulations. New anti-avoidance measures will be introduced to prevent the use of offshore trusts to shelter income and gains from UK tax. These measures are designed to close loopholes that have allowed non-doms to benefit from tax advantages while maintaining significant connections to the UK.
Enhanced Reporting Requirements:
Non-doms will be subject to enhanced reporting requirements to ensure transparency and compliance with the new rules. These requirements will include detailed disclosures of foreign income and gains, as well as the movement of funds into and out of the UK. The government aims to use this information to better monitor and enforce tax obligations.
What are the impact of these changes?
The rationale behind these changes is to create a more equitable tax system and reduce the tax advantages enjoyed by non-doms. The government anticipates that these reforms will generate additional revenue to support public services and infrastructure. However, there are concerns about the potential impact on the UK’s attractiveness to international talent and investment. Critics argue that the changes could drive wealthy individuals and businesses away from the UK, potentially harming the economy.
For non-doms and their advisors, navigating these changes will be complex and challenging. The abolition of permanent non-dom status and modifications to the remittance basis, in particular, require careful planning and adjustment to ensure compliance and optimise tax positions. Non-doms with significant foreign income and assets will need to review their financial arrangements and consider restructuring to mitigate the impact of the new rules.
With extensive experience in advising high-net-worth individuals and international clients, Hillier Hopkins can offer comprehensive services tailored to the unique needs of non-doms. Our experts can provide guidance on the new legislation, helping clients understand their obligations and opportunities under the revised tax regime.
The upcoming changes to the taxation of non-UK domiciled individuals mark a significant shift in the UK tax landscape. While these reforms aim to enhance fairness and revenue generation, they also introduce complexities and challenges for non-doms. By conducting thorough reviews of clients’ financial situations, we can help you identify potential tax liabilities, develop strategic plans to minimise exposure, and even navigate the complexities of offshore trusts and other investment structures affected by the new rules.
