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image of houses of parliament | accountingweb | Non-doms missing from finance bill

Non-dom reforms cut from pre-election finance bill


The general election announcement has meant that the government’s plans to reform non-doms rules have been abandoned. Ray McCann wonders where we go from here.

31st May 2024
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Until the prime minister stood in the rain and announced a general election we were facing potentially two very significant changes to how individuals who are UK resident but non-domiciled are taxed. As part of its offer to voters, Labour had for some time made clear that a future Labour government would abolish domicile as a relevant factor in determining an individual’s tax liability.

Both Labour and the Conservatives have at various times over many years mooted the possibility of abolition and since 2010 under the Conservatives, we have seen profound changes to the tax position of wealthier non-doms. This was especially so in 2017, when a limit was put on the period in which remittance basis could apply and a deemed domicile concept was introduced for income tax and capital gains tax, bringing them into alignment with a similar approach that had applied for decades to inheritance tax (IHT). These changes were ironically upended by the 2017 general election.

Similar ground

The Labour proposals will involve abolishing domicile in a tax context entirely and, no doubt in an attempt to steal Labour’s thunder, Jeremy Hunt has somewhat surprisingly announced plans to make major changes to the non-dom rules in his Spring Budget – changes that would effectively abolish domicile as a relevant factor in an individual’s tax position. This announcement left Labour, for whom abolishing the existing rules was a key revenue-raising policy, with a major problem since those revenues were intended to fund expenditure on the NHS.

So far as income tax was concerned both the government and Labour appeared to have moved on to similar ground. The big divide was in relation to excluded property trusts, with the government maintaining excluded property status for trusts settled prior to April 2025 and Labour removing excluded property trust protections completely. 

Reform abandoned

The announcement of a general election has meant that the government’s plans for reform have effectively been abandoned since the finance bill was stripped of the relevant clauses in the “wash up” in which the finance bill was hurried through the legislative process prior to the prorogation of Parliament. So, where do we go from here? 

Whoever wins on 4 July, there is a strong chance that what we end up with is less radical than what either party has so far proposed. By then both Labour and the Conservatives will have been able to absorb the many critical comments aimed at them by a number of wealthy individuals who, it is claimed, have already booked their flights.

Absurd system

I have no doubt that we should have abolished domicile as a relevant factor in relation to all taxes many years ago. To have any part of your tax system dependent on where your father or grandfather was born is frankly absurd and it is only relatively recently that HMRC has been challenging the claimed status of individuals who have, in some cases, spent their entire lives here. It was not unknown for second-, third- and fourth-generation children to assert non-domicile status in the past and at one time the Revenue appeared happy to confirm domicile based on nothing more than a claim of foreign descent with, typically, only those asserting a foreign domicile of choice being challenged. 

What was also clear was that domicile allowed not only the avoidance of tax on foreign income and capital gains, but also, in some cases, domestic income and capital gains by UK resident non-doms. 

Equally however, we cannot and should not be an international outlier in not having a sensible scheme that is attractive to mobile international wealth (whether those investing in the UK live here or not) and which can be defended by the government as having benefits for the whole of the UK. 

Significant barrier

In my view the non-dom rules as they have traditionally applied, and more precisely anxiety within governments of all colours about abolishing them, has been one of the most significant barriers to modernising how our tax system incentivises mobile international wealth to locate to the UK. 

If you consider the non-dom rules as a tax relief, which in truth it is, neither the government nor anybody else has any idea what it costs in forgone revenues. We have no idea at all what is held in offshore trusts and, despite the international push against the use of tax havens, the rules encourage the setting up of secretive trusts in offshore jurisdictions. We have no way of ensuring compliance with, for example, IHT ten-year anniversary charges, and HMRC ends up in too many cases acting like a praying mantis just waiting for a taxpayer to make an inadvertent or ill-advised direct or indirect remittance. 

The remittance rules have been completely mad for decades and even George Osborne’s decision to allow, in effect, tax-free remittance where the remittance was invested in UK business has in too many instances become an excuse for a long-running HMRC enquiry. This is often as a result of poorly drafted legislation running counter to how things are done in the “real world”. There are many other examples of the way provisions aimed at non-doms have created traps for the unwary.

Italian job?

So, when Parliament returns to business as usual in the autumn it is likely that what will emerge is something more closely resembling the Italian scheme that allows a 15-year period in which non-Italian source income and capital gains are not taxed, even if they are remitted to Italy. While this is described by some as a non-dom tax scheme, it applies to anyone who has lived outside of Italy in nine of the 10 years preceding becoming an Italian resident (with equally favourable arrangements for family members). It is, in effect, a flat tax arrangement at a cost of 100,000 euros a year. 

Having existed for so long, rushing important changes such as the taxation of non-domiciles with its unknown consequences is likely to be as ill-advised as continuing with the status quo. And getting it wrong will almost certainly mean that whoever finally consigns domicile to the tax history books will enjoy anything but la dolce vita.

Replies (6)

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By Paul Crowley
31st May 2024 16:12

Domicile really is an outdated concept that is now just a tax avoidance sham available to a limited few rich people.
The claim that they will depart really is crying wolf, or would be what they always intended to do.
The UK really should not be a tax haven for the rest of the world.

Thanks (8)
By FactChecker
31st May 2024 22:24

"I have no doubt that we should have abolished domicile as a relevant factor in relation to all taxes many years ago" ... it'd be hard to disagree with that (and I'm not going to do so).

BUT there should be IMHO an obvious corollary ... a cessation of the concept that your tax residency sets the location of your liability for taxation on ALL earnings and gains around the world.
I know that it's an accepted shibboleth across most tax regimes worldwide, but it's sheer greed by the (typically richer) state.

Say your father (and several generations afore him) own a couple of acres of scrubland (for grazing goats) on the side of a mountain in Sicily or wherever. When father dies and leaves the land to a child who happens to be resident in the UK (working in the NHS say), that child may sell the land to a brother who stayed in Sicily and to give the sale money to various cousins also in Sicily. So origin of land when purchased + ownership for several generations + ongoing usage all remain in Sicily AND no money related to it ever entered or left the UK.
But HMRC (quite correctly as it stands) will be looking at CGT on the poor NHS worker who has received no benefit (and never will) from the asset or any income.

So by all means void the concept of domicile ... but in return stop laying claim to tax on assets and/or income that never enter the country.

Thanks (13)
Replying to FactChecker:
By Michaelr205
03rd Jun 2024 08:36

Interesting example.


How about the person who is sheltering income/assets overseas (legally), grows the value over the years and then emigrates having used resources of this country to grow their assets?

I think your example is a good start in reviewing that while area.

Thanks (5)
By Justin Bryant
02nd Jun 2024 10:57

Why did the EE NIC cuts achieve nothing for the Tories? It's coz people generally have been fooled into not minding (too much) paying that, as they've been conned into thinking it benefits them directly somehow re pensions etc. I've certainly never been asked to advise specifically on EE NIC planning for anyone (beyond basic PSC stuff etc. that is). The Tories are even more foolish to think cutting that will help them. They should have instead cut IHT or SDLT etc., which would not have cost much (in relative terms) but would have had a big impact compared to Labour.

As for the non-dom changes, there's no evidence this will raise more tax. Ignoring potential EPT planning, the IHT change in particular looks totally mad to me from the point of view of any wealthy non-dom, especially the 10 year IHT tail. It's quite possible less UK tax overall will arise. See:

Thanks (0)
By Michaelr205
03rd Jun 2024 09:13

'scuse the typo!

Thanks (0)
By abelljms
03rd Jun 2024 11:42

Only a bunch of civil terdants / lawyers would get so bogged down in fixing an anomaly in the tax system dating from very different times.
It's boringly logical that the income/capital gains arising in each country you either live/work in should be taxed in that country.

What's tricky is all the antiavoidance junk needed to stop shifty UHNWs moving liability to taxes on their assets to the lowest tax jurisdiction they can get away with.

Thanks (4)