Non-dom status abolished in raid on rich
Hunt to introduce ‘fairer system’ from April 2025 where new arrivals to UK pay same tax as British
THE non-dom tax regime will be abolished in a raid on the rich to fund National Insurance cuts for working people.
The generous system of tax breaks for non-domiciled individuals will be replaced with a “fairer system” from April 2025 where new arrivals to the UK pay the same tax as everyone else after four years.
The Chancellor said scrapping the controversial regime, introduced in 1799, will raise £2.7bn a year by 2028-29.
Jeremy Hunt said: “I have always believed that provided we protect the UK’S attractiveness to international investors, those with the broadest shoulders should pay their fair share.”
The tax break allows foreigners who are based in the UK but “domiciled” elsewhere to avoid paying tax on their overseas income. Downing Street said the Prime Minister was not involved in dis- cussions about non-dom abolition given his family links.
His wife, Akshata Murty was a regis- tered non-dom but said she would pay UK tax on her overseas income in 2022.
A No 10 spokesman said: “There are established processes whereby arrangements can be put in place to mitigate against potential or perceived conflicts of interest. The Prime Minister was recused from all policy development and was only sighted on the policy once final decisions had been taken.”
From April 2025, new arrivals to the UK will not pay tax on their foreign income and gains for the first four years, however, after that, they will pay the same tax as other UK residents.
Abolishing non-dom status was a key Labour pledge.
However, Mr Hunt claimed in his speech yesterday that Labour had in fact stolen the policy from the Conservatives. He said: “Nigel Lawson wanted to end the non-dom regime in his great tax reforming Budget of 1988, which is where I suspect the Labour Party got the idea from.”
He heralded the incoming regime as “one of the most attractive offers in Europe” for foreign nationals.
However, experts have questioned whether wealth makers would continue to come to the UK if they could only stay for such a short period of time.
According to the Office for Budget Responsibility’s own analysis published alongside the Budget, 10 per cent to 20 per cent of current non-doms will leave the UK because of the tax changes.
The forecaster warned that the tax take from the new regime is “highly uncertain” because of the difficulty in predicting how non-doms will react to the reforms.
Robert Salter, at the accountancy firm Blick Rothenberg, said: “It is worth noting that many alternative regimes in other countries provide relief for 10 or 15 years, such as in Italy.”
Richard Jameson, at the accountants Saffery, said: “The abolition of this regime will add uncertainty and may put off some of those seeking to come to the UK and bring with them long-term investment.”
Inheritance tax could be a key factor in whether or not foreign nationals will continue to take up residence here, experts said. The UK has one of the highest inheritance tax rates in the world at 40 per cent. Many countries do not tax the estates of the deceased. Caroline Miller, at the law firm Wedlake Bell, said: “Having their worldwide estates subject to UK inheritance tax at 40 per cent would not be attractive, particularly when other countries have a more competitive nondom system in that respect.”
The Government said yesterday it would consult on moving to a “residence-based regime” for inheritance tax, where new arrivals are exempt for 10 years. This means nondoms’ families would not pay inheritance tax if the individual passed away during their first decade in the country.
It also wants to create a gradual transition into the new system for the 37,000 existing non-doms claiming the so-called remittance basis.
Currently, non-doms pay no tax on income and gains earned and held overseas for their first seven years in the country. After this, they must pay a “remittance charge” of £30,000 to continue enjoying this tax break. This rises to £60,000 for those who have been in the UK for at least 12 of the last 14 years.
To transition into the new regime, the Government will give them a lower 12 per cent tax rate on income and capital they bring into the UK over the next two years. It will also provide a temporary 50 per cent exemption on the taxation of foreign income for the first year of the new regime.
Sophie Warren, at the law firm Pinsent Masons, said: “We’re likely to see a lot of non-doms getting income and capital into the UK to make sure they benefit from the temporary 12 per cent tax rate on doing so. If they don’t, they will end up paying the full UK tax rate on it – that’s up to 45 per cent on some income.”
She added: “The upcoming consultation needs to make sure the steps the Government is taking are not too much, too soon. There’s a risk of chasing people out of the country if the implementation is too aggressive.”
How much the scrapping of the regime will raise depends on how many non-doms stay in the UK afterwards. The scheme has become less generous since 2017, when rule changes meant non-dom status could no longer be held permanently.