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Will ‘non-dom’ tax status be scrapped?

Ahead of next Wednesday’s Budget, where the pressure is on Jeremy Hunt to offer tax cuts, Treasury officials are exploring a range of options to either generate more money in tax or reduce spending in order to make cuts possible.

A few weeks ago we were pondering the rumours that some conservative MPs might be in favour of abolishing Inheritance Tax. This week there has been quite a lot of talk about another option reportedly being explored which is said to be the scrapping or scaling back of the non-dom regime.

Here, we take a quick look at what the scheme actually is and the potential implications of what actions Mr Hunt may or may not take next week.

 

How does the non-dom regime work?

Non-dom is short for non-domiciled individual, and it is a term used for a UK resident whose permanent home (‘domicile’) is outside the UK for the purpose of their tax status.

The concept of domicile is complex, however generally, for IHT, the regime allows non-domiciled individuals resident in Britain to pay UK IHT only in respect of their UK assets.

The remittance basis of taxation may also be available for non-doms to protect most of their foreign income and gains from UK taxation for up to 15 years, provided they do not remit any income or capital gains back into the country.

For wealthy individuals, this is perfectly legal and presents the opportunity for significant savings, if they choose a lower-tax country as their domicile.

 

What are the tax rules for non-dom status?

If you are a non-dom and you choose not to pay tax in the UK on your overseas earnings, you must pay:

  • £30,000 if you’ve been here for at least seven of the previous nine tax years
  • £60,000 for at least 12 of the previous 14 tax years

If you earn less than £2,000 a year from foreign earnings, and you do not bring that money into the UK, you do not have to do anything.

For IHT purposes, it protects your offshore wealth from UK IHT which is currently at 40%.

 

What impact would scrapping the non-dom regime have?

The most up-to-date statistics from HMRC show there were 68,800 non-doms in the UK for the tax year ending 2022 and research by Warwick University and the London School of Economics indicates that axing the regime could generate £3.6bn for the government.

 

Our thoughts

It’s a particularly sensitive subject for the government given that perhaps the UK’s most famous non-dom is Rishi Sunak’s’ wife, Akshata Murty. After her status emerged two years ago, she said she would start paying UK tax on earnings outside the UK.

Jeremy Hunt has previously said that rather than tighten the rules for non-doms, he would rather “wealthy foreigners spent their money in Britain because that supports jobs in our shops, in our restaurants and in our hotels.”  Also saying they helped ensure the UK was an attractive place for highly sought after, well-off people to choose to live and work.

Labour has previously said it would end non-dom status although reports have suggested that it would now look at a compromise four-year exemption, which could raise more that £2bn.

HMRC have already increased its activity in pursuing domicile enquiries, both in lifetime and on death and those who rely on their domicile status for tax purposes should be ready to prove it if challenged

We don’t forsee a situation where the non-dom status would be scrapped overnight but whatever happens next week or indeed in the coming months, announcements are quite possibly on the horizon which could mean non-doms might need to review their positions.

Get in touch with Michelle Willson at Michelle.Willson@cowgills.co.uk to find out more about our service and how we can help you.

Disclaimer

The information was correct at time of publishing but may now be out of date.

Tax
Posted by Michelle Willson
1st March, 2024
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