Although there had been speculation in the run up to the Spring Budget that the Chancellor was set to steal Labour’s proposals to ‘abolish non-dom status’, the actual announcements from Jeremy Hunt went beyond the anticipated changes for non-domiciled individuals.
As a reminder, a non-domiciled individual is a person who is considered to have their ‘permanent home’ overseas (usually in the country of their or their father’s birth) which hasn’t been displaced by an intention to reside indefinitely or permanently in the UK. Domicile is determined in accordance with common law and is subject to interpretation, which can raise uncertainties.
Since 2017, this has been supplemented with a ‘deemed domiciled’ status applying for all tax purposes after 15 years of UK tax residence in a 20-year period. Importantly, non-doms are currently able to create ‘protected settlements’ before they become deemed domiciled. This means that they can extend many of the tax advantages for as long as they maintain their non-UK domicile in common law. In particular, certain trusts retain an exemption from IHT as ‘excluded property trusts’ to the extent that they hold non-UK assets.
It’s proposed that the taxation of individuals domiciled outside the UK for tax purposes (‘non-doms’) will radically change from April 2025:
The transitional measures resulting from the changes will allow for:
The government proposes to consult on a new, residence-based, regime for Inheritance Tax to apply from April 2025. This seems likely to include a 10-year residence period, bringing all worldwide assets into the scope of IHT with a further 10 year ‘tail’ after ceasing UK residence.
Excluded property trusts will retain their IHT beneficial status where they’re established by non-doms before 6 April 2025. New arrivers may be able to create such trusts within their first 10 years in the UK, although this will need to be clarified.
While the reliance on residence as determined by the statutory residence test (SRT) rather than the uncertain concept of domicile is a welcome simplification, there seems no doubt that these changes will reduce the attractiveness of the UK as a base for internationally mobile wealthy families.
Similarly, the removal of the remittance basis will both simplify the management of offshore funds and may encourage more of these funds to be invested or spent in the UK - at least to the extent that there’s no mass flight of non-doms to settle in more attractive jurisdictions going forward.
Clearly, the proposed 6 April 2025 implementation date allows some time to consider the full details once they are published (with further details expected in the coming months) and plan accordingly, so we would caution against rushing to quick judgements.
We’ll review the full details as they emerge and would be happy to discuss in more detail how they might apply to your specific situation.
The areas that non-doms may wish to consider could include:
If you would like to discuss how these changes will affect you, please contact Tax Partner, Phil Moss (philmoss@lubbockfine.co.uk), Tax Director, Aidan Meade (aidanmeade@lubbockfine.co.uk), or Tax Director, David Portman (davidportman@lubbockfine.co.uk).
