Wednesday saw a flurry of press speculation about the possibility of Jeremy Hunt abolishing or reforming the tax reliefs available to non-domiciled individuals at next week's budget (6 March).
First of all, many of those news reports are vague (or positively misleading) as to what a "non-dom" is and how they are taxed. For a more accurate summary we have an explanation here: An introduction to Residence and Domicile (burges-salmon.com). This also has more detail about the remittance basis which, along with preferential inheritance tax treatment, is one of the main tax benefits associated with being non-UK domiciled.
The big question is of course “will this actually happen?" and the short answer is “possibly but on balance we think it is unlikely”. It is common practice for a Government to float various eye-catching tax policies before budgets and mini-budgets, generate a lot of headlines and then do something completely different. The November 2023 Autumn Statement is a recent example of this (with lots of noise about scrapping inheritance tax and then nothing of the sort).
But let's assume for the sake of argument that changes are made. What could this mean in practice?
Dates are important here and we think it likely that any changes would be effective from either 6 April 2024 or 6 April 2025 rather than from the date of the budget next week. Changing a person's tax status part of the way through a tax year is administratively more complicated and open to additional challenges of unfairness which we suspect the Government would want to avoid.
Secondly, any changes are likely to be adjustments to the current regime rather than wholesale reform (simply because adjustments are simpler to implement in the time available). Currently most non-domiciled individuals can be tax resident in the UK for up to 15 years before becoming “deemed domiciled" (at which point they lose most of the tax benefits associated with being non-UK domiciled). However, between years 8 and 15 they have to pay a flat fee, known as the “remittance basis charge” (either £30,000 or £60,000 depending on the length of stay), to benefit from some of the key income tax and capital gains tax reliefs. The simplest, and therefore probably most likely, options available to the Chancellor would be to reduce the number of years of tax residence required to become deemed domiciled and/or increase the remittance basis charge. Changes to the taxation of trusts settled by non-doms would be much more complicated and so appear less likely (at least between now and 6 April 2024).
If the time taken to become deemed domiciled was reduced and the changes were to take effect from 6 April 2024 it is quite probable that there would be some form of rebasing of non-UK situated assets for capital gains tax purposes. Without rebasing anyone who would become deemed domiciled as a result of new rules on 6 April 2024 would be incentivised to realise as many gains on non-UK assets as possible between now and then. Whether any relief would be as generous as the rule used in 2017 (which left some taxpayers much better off than they would have been without the changes) is debatable but we think that something would be done to avoid a cliff-edge result for gains.
It is also possible, although by no means certain, that other “sweeteners” could be offered to non-doms to try and persuade them to stay in the UK even if the remittance basis changes. In 2017 this was the introduction of protected trusts.
As for what non-domiciled individuals should be doing in response to this news, we think that most can sensibly wait and see what is actually announced on March 6th. Taking drastic steps between now and then runs a high risk of actually making matters worse (e.g. because there are no changes and time and money are wasted or because someone loses the ability to benefit from transitional reliefs) and we think that taxpayers are likely to have until 6 April 2024, at least, to put their house in order should they need to.
Tories explore scrapping non-dom tax status