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More than two centuries after it was introduced by ‘mad’ King George III, the non-dom tax regime still allows UK residents with a domicile outside the UK to only pay tax on overseas earnings which are remitted to the UK. In the colonial Britain of 1799, this might have made sense. In recent years however, with the NHS in desperate need of funding and a cost of living crisis, there has been pressure from voters on all sides to end a system that arguably allows some of the richest in society to avoid paying their fair share of tax.
In the 2008 Budget, substantial annual charges were introduced for long-term UK residents who wished to continue to make use of the non-dom tax breaks. Earlier this year however, Jeremy Hunt went much further and announced that the non-dom system would be scrapped entirely, with transitional measures to be put in place to ease the tax burden for those affected. The Labour Party welcomed the announcement but have suggested that they will go even further and close certain ‘loopholes’ in the Conservative’s proposals.
We will need to wait until the Budget on Wednesday 30 October to see exactly what measures are proposed by Labour, but Sam Stent, Tax Advisory Associate Partner thinks this will likely include:
Scrapping the 50% transition-relief for foreign income
The Conservative’s proposal that existing non-doms would only be subject to income tax on 50 per cent of their foreign income in the first year of the new regime (tax year 2025/26) will likely be scrapped meaning that UK tax will be payable by non-doms on ALL foreign earnings from Day 1 of the new regime.
Encouraging repatriation of assets stockpiled abroad
Labour has indicated that it is broadly in support of the Conservative’s proposal to encourage non-doms to repatriate their stockpiled income and gains to the UK by charging a flat 12% tax-rate for two years. Whilst the precise details of Labour’s plan have not yet been announced, we are sure to see some variant of this policy adopted by Chancellor Rachel Reeves in the October Budget.
Charging inheritance tax on all non-UK trust assets
This is the one that everyone is talking about …..
Currently, trusts established by non-domiciled individuals can benefit from a broad exemption from inheritance tax as long as they only hold assets situated outside of the UK.
However, in response to Jeremy Hunt’s March 2024 Budget, the Labour party stated that:
“Labour will include all foreign assets held in a trust within UK inheritance tax, whenever they were settled, so that nobody living here permanently can avoid paying UK inheritance tax on their worldwide estates.”
Some commentators have speculated that such a change will see hordes of non-doms leaving the UK and heading to countries with more favourable tax regimes and that the Labour party is therefore as deranged as the King who introduced the rules over 200 years ago. However, the cost of King George’s non-dom plans are now estimated at £3.2 billion per year ….so maybe Labour’s plans aren’t madness after all…..
Budget Event – 31 October
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