91探花

Since the last Conservative budget in the spring, non-doms have been resigned to the fact that the existing non-dom regime will come to an end. Although the Conservative manifesto was silent on this topic, potentially hinting at a U-turn should they have stayed in power, Labour have been very clear for a long time of their intention to reform the regime. The question now is what will Labour do differently to what was initially proposed by the Conservatives?

Many tax professionals agree that the concept of domicile is outdated for tax purposes. The remittance basis regime is no longer fit for purpose due to its complexity and the difficulty in determining domicile in an age where travel and relocation is comparatively easy. Consequently, change itself in this area is not unwelcome. 

The new government has a real opportunity to design a replacement system which is suitable for the UK, competitive on the world stage and will not drive non-doms out of the country. The government has the benefit of feedback and actions from existing non-doms to the Conservative proposals, which, let’s face it, were based squarely on Labour proposals; broadly a new regime that applies after four years of residence.

In meetings involving HMRC and professional advisers to wealthy non-doms that took place before the General Election was announced, advisers shared their and their clients’ reactions with HMRC and Treasury civil servants. The most striking point was that all the attendees were in broad agreement; four years is too short a period before the proposed replacement ‘residence regime’ applies and existing structures should be ‘grandfathered’, with any new rules being applied to new arrivals and new structures. The consensus is that the transitional provisions are reasonable and in particular, the temporary repatriation facility would be likely to raise revenue for the Exchequer.

The most concerning point for me and many other advisers is Labour’s proposals to end the inheritance tax (IHT) exemption for trusts settled by non-doms with non-UK assets. In absence of wider reforms to UK IHT, this one change will likely prove key in driving wealthy non-doms to leave the UK. The issue for UK plc is that many of those planning to go are exactly the people with the skills and abilities to grow businesses and the economy. In other words, exactly the sort of people that Rachel Reeves is keen to encourage.

Labour has the chance to show that now it is in power, it can listen to feedback and make decisions which are right for the country rather than for short term political gain. Non-doms will listen into the first Labour fiscal event with interest, but at present many are busy scouting out where they will relocate to, taking their businesses and their significant spending power with them.