NON-DOMS” WHO LIVE IN THE UK will now have to elevate their Incoming Tax Warning Alert level from amber to red. This is because of an August 8, 2023 poll showing a Labour landslide victory with around 460 seats and the Conservatives reduced to just 90 seats – if there were an imminent general election.
The Impending Threat: Labour’s Potential Tax Changes
With a potential Labour majority looming, wealthy “Non-Domiciliaries” who enjoy the benefits of the Remittance Tax Basis are about to face the biggest challenge to their status since the 1790s.
It should be understood that most “Non-Doms” relocated to the UK principally because of the extensive long-term tax advantages which have been in place for more than two centuries ago. Until recently, the Remittance Tax regime has been equally satisfactory to Conservative, Labour (and Coalition) governments over many decades.
Unfortunately for Non-Doms, this two hundred-year-old regime is under threat as never before because Britain’s Labour Party has recently reconfirmed – and re-emphasized — that they will cancel the Remittance Tax basis if elected. The Conservative government is likely to call an election earlier, during the fall of 2024, even though the official due date is January 2025. You can read more about this topic in our previous UK blogpost here.
So the red alert light is flashing for the Remittance Tax regime.
Inheritance Tax: The Looming Concern for Non-Doms
The other UK tax issue that is of major concern to Non-Doms is the Inheritance Tax (aka “IHT” or “Death Duties”). Currently Non-Doms are only subject to IHT on their UK assets. As most UHNW Non-Doms hold their assets outside the UK, this is a major tax savings for their estates. Furthermore, as with regular UK taxpayers, Non-Doms can take advantage of various strategies to reduce their estate’s IHT liability on their UK assets.
If the Remittance Tax regime were abolished, current Non-Doms would suddenly find their worldwide assets (above either a £350K or £500K exemption) subject to a devastating 40% IHT hit! Furthermore, there is also a populist push amongst many Labour politicians and their supporters to abolish or reduce existing tax planning trust strategies which reduce IHT on both UK and newly captured non-UK assets.
Navigating the Storm: Advising Non-Doms on Tax Planning
In the face of this pending “Tax the Rich” wildfire, Non-Dom advisors should advocate the following steps:
Estimate the damage to their client’s “fiscal house”. This involves running the numbers on the increases in income and capital gains taxes, and IHT should the Remittance Tax regime be abolished. In addition, an estimate should be done of the IHT liability on global assets should current IHT planning strategies be rendered useless;
Evaluate “fire insurance” options. This involves identifying and assessing potential future tax home countries should these changes occur. Future tax homes must have the following features:
- a) Meet the needs of ALL family members (e.g. personal security, education, work, lifestyle etc.);
- b) Present a tax-favourable outcome either through existing tax regimes (i.e. remittance, lump sum etc.) or through pre-immigration structuring (e.g. Non-Habitual Tax Resident).
- c) Ensure completion of immigration permission and any required pre-immigration tax planning BEFORE the upcoming UK election! (Note: For certain Non-Doms a return to their country of origin is a non-starter, because of sovereign risk or unfavourable tax outcomes.
The Third and most important step is:
Develop a “Fire Escape Plan”. This is developing a step by step holistic plan to leave the UK tax system and establish the family in the new chosen tax home.
Crafting a Comprehensive Back Up Plan
This Back Up Plan needs to contemplate restructuring financial affairs, selling assets, purchasing new residences, locating and enrolling in schools etc.
As accurate, comprehensive, and unbiased information is necessary at every stage, the advisor must involve experienced professional advisors to join the Non-Dom client’s team. A key element for success is that the advisory team operate in a coordinated and timely manner. Siloing and delay will assuredly spell disaster.
Remember, Labour’s Tax the Rich Wildfire is real and the political winds are rapidly blowing it towards your Non-Dom clients. The warning lights are flashing red. Advisors who assist their clients in eluding the destructive impact of the wildfire will receive praise and recognition. Those who fail at this important task….