Abolition of Non-Dom Status – Who cares?

From time to time the ‘masses’ seem to become exceedingly angry about some injustice in the tax system, real or perceived. The most recent embodiment of this has been in relation to non-domicile tax status. This was the “tax loophole” put in place by the Tories for their crony friends which enable wealthy foreign people to not pay any tax.

Except, of course, it wasn’t.

The legislation was put in place with specific intent – to benefit the UK by attracting wealthy individuals to the country. There is an underlying assumption that doing so provides a benefit to the UK economy as evidenced by;

• the fact that other countries arrange their tax systems similarly to “compete” for those people; and
• the fact that successive Governments of both colours have, from time to time, looked in depth at scrapping the policy and decided against it.

Until now.

So what has changed? Why now?

One change is that a lot of people have become vexed by the tax position of resident non-domiciles – publicised by some media outlets as a ‘loophole’ – at a time when quite clearly the UK finances are in a parlous state.

The interesting thing is that the announcement yesterday that it was to be replaced with a more ‘modern’ system seems to have, temporarily at least, satisfied people that the unfairness has been dealt with.

But what has changed, should they be happy now?

Bringing wealthy people into the UK does benefit the economy and all political parties know it. Neither party wants to curtail that to any great degree so what has happened (and what was always envisaged by both parties) is something that satisfies those who are ‘up in arms’ about non-dom status but, as far as possible, does not cut-off the benefits arising.

The result is a proposed new set of rules that mean that domicile status will no longer enable someone to claim any special treatment; and there will not be a remittance basis of taxation that allows tax on overseas income and gains to be avoided.

However, while non-domicile has become irrelevant there are a series of other measures that in some cases will be even more beneficial to those impacted. To give some examples;

• A person first becoming resident in the UK after April 2025 will have to pay no UK tax on their foreign income or gains for the first 4 years even if brought into the UK.
• A person who has used the remittance basis previously will have a window during which they will be able to bring the relevant income and gains in at a tax rate of only 12%.

Currently rates of up to 45% might apply in those situations.

It could certainly be said, therefore, that there are still tax ‘incentives’ for wealthy foreigners to come into the UK. In effect we have replaced one set of ‘loopholes’ with another – though clearly ‘loopholes’ is not the right word – but nor was it ever.

The big change is the timescale.

Previously the beneficial treatment might last for 15 years – that is down to 4, and arguably less in some scenarios.

In reality the length of this period was always the main issue – and that remains the case.

The concern that I have is whether Jeremy Hunt has gone too far by reducing to 4 years. I have seen it argued that a period long enough to put children through secondary school would be ideal and suggestions of a 7 – 8 year period as optimum.

Some may wonder why, when non-domicile status impacts directly on a relatively small number of individuals, I have covered it here when there were other measures announced of more relevance to more people – the reductions of National Insurance, or the changes to the High Income Child Benefit Charge for example.

The reason is that it just may be that there will be a considerable number of people who will dislike the new rules more than they disliked the old ones, but for a very different reason!

There is one industry in the UK that is undoubtedly the strongest in the world and it may be that Mr Hunt has just undermined it.

For those who revel in watching Premier League football and seeing the best players and managers in the world plying their trade in “our” league, it could be that situation will now start to change. The chances of bringing in another Guardiola, Klopp or Haaland (or of them extending their contracts) may well have just considerably reduced.

Of course, the likelihood is that Labour will be in Government before these rules can be enacted – it would be incredibly ironic (and I suspect incredibly popular) if they took steps to ease Mr Hunt’s proposed rules in such a way as to ensure that industry retains its world leading status!