Will the Tories throw the Non-Dom system under the bus?
Could the Chancellor’s family tax situation lead to the end of the Remittance Tax Regime?
For the last month, the UK’s political news has been dominated by the disclosure that the heiress wife of Chancellor of the Exchequer, Rishi Sunak, has been paying tax in the UK as a so-called “Non-Dom”. More accurately called the Remittance Tax basis. This type of UK taxation has been legal and in existence since the French Revolution. However, the fact that the wife of the Minister responsible for tax policy in the UK was electing to be taxed under this favourable tax system struck much of the general public as flagrantly improper.
The opposition Labour Party immediately knew its next election bumper sticker would read “It’s Legal….but is it Right?” And within days the Shadow Chancellor announced that it was Labour’s policy to abolish the Remittance Tax basis.
Meanwhile, the ruling Conservatives treated this “disclosure” as yet another episode in the on-going drama of Tory Party Politics Today. Indeed, the current spectacle of Conservative MPs meandering listlessly through the House of Commons… struggling to determine when and how they will vote on the future of Prime Minister Boris Johnson – and thus their own political careers – continues.
Until now very few MPs have spoken up. However, many have contacted the Chief Whip to express either their approval or rejection of Boris Johnson. If the number of rejections reaches fifty-four, Tory MPs would then hold a vote to decide his future as Conservative leader. He could be out – literally – within a few days.
Will election results force the Greased Piglet to take action
Add to this percolating stew the fact that the Tory performance in the local elections this week has been less than spectacular. This dramatically increases the possibility that “The Greased Piglet” will do something dramatic in an effort to stop a palace revolt. One distinct possibility is that he will steal Labour’s thunder… Johnson himself may well adopt the publicly popular policy of getting rid of the Remittance Tax regime!
Most clear-eyed observers recognise the enormous economic benefits of Non-Doms. However, such an “own goal” is not without precedent in Tory politics. In 2015 former Chancellor George Osborne, under the guidance of PM David Cameron, made significant changes to restrict the Remittance Tax regime. Many pundits speculated that this was done precisely to take the wind out of Labour policy plans. Moreover, there was a need to deflate that era’s Non-Dom scandal concerning Lord Ashcroft. At the time Non-Dom status was presented by Labour as giving wealthy people an unfair tax advantage. Taking steps to limit eligibility and benefits of Non-Dom status was a popular move then… and in this period of economic uncertainty would be again.
Whether done by BoJo to retain his leadership position, or by his successor to repair Tory popularity in the run-up to the next General Election, throwing the Non-Doms under the bus would certainly be considered a smart short-term political move…even if economically destructive in the long-term.
The clock is ticking… how much time is left before one can reasonably expect the abolishment of the ‘Non-Dom’ Remittance Tax Regime?
As stated, Labour’s new leader Sir Keir Starmer has confirmed that they will abolish the Remittance tax regime should they win the next election.
The “known unknowns” are:
- When the next general election will take place; and
- What stance the Conservatives will take regarding the Remittance tax during the campaign?
Some experts predict that the Tories will go for an early election based on the following projections:
- the end of the Ukraine conflict by the end of the year due to Russian exhaustion; and
- the revival of the world economy as a result and the subsequent reduction in commodity and industrial prices globally.
If energy prices are down and if the Party has the “right leader,” this might be attractive. But the “ifs” do accumulate.
A vote winning policy…
Whether the election is held as scheduled in 2024 or called early, leaders and parties must present their policies. It’s unavoidable that a vote-winning policy that might be very attractive would be the abolishment of the Remittance Tax system.
Whoever proposes abolishment would clearly attract the support of many disenchanted voters. It would mean fresh taxation proposals which – for once – would not hit the middle and lower classes… only the very wealthy. Voter opposition would be minimal as few Non-Doms are actual voters. Finally, add to this the perception that many of these Non-Doms are Russian. In total, you have a potent one-two-three punch combination.
And thus lies the danger for HNW Non-Doms! Is such legislation likely to come from the Tory Party? There might only be a 25% chance of this… about the same chance as an early election. But if you knew there was a 25% chance your house would catch fire, would you take preventative steps and get Fire Insurance and a Fire Escape Plan (aka: a Back-up Plan)? Of course you would. We all would.
So what can Non-Doms do to protect themselves?
First, acknowledge that the abolishment of the Remittance Tax basis is clearly politically popular. Second, if your advisors believe that your UK tax liability would balloon significantly should the Remittance Tax basis disappear, you owe it to yourself and your loved ones to get to work NOW. You should on prepare practical strategies and solutions in the form of a Back-Up Plan that avoids preventable bad outcomes.
The first element of a Backup Plan is acquiring the “fire insurance” protection of an alternative citizenship and residence. Most Non-Doms still possess the citizenship they had prior to becoming resident in the UK. However, for various reasons they may not wish to return to that jurisdiction should the Remittance Basis disappear. For that reason, the family should acquire an alternative residence and possibly even citizenship. Which jurisdiction(s) are most appropriate depends on multiple factors including family history, budget, timeline and lifestyle/business needs. Furthermore, the future taxation of the family wealth is critical. One does not want to jump out of the UK tax pot and into another jurisdiction’s tax fire.
Clearly there is no one single fire insurance strategy that is appropriate for all Non-Doms. For some a residence in Monaco may be the perfect solution. For others – especially with families – it would not provide the ideal lifestyle. Often a combination of residences and citizenships will meet a family’s needs, along with building in optionality for a rapidly changing world.
Planning a way out…
Once the appropriate fire residence and citizenship strategy has been decided and the process of acquiring the same has commenced, then the “fire escape plan” can be mapped out. The escape plan looks at all of the practical steps that must be taken to sever UK tax residency. In addition, an asset-by-asset plan must be made to deal with the event of non-residence and future potential holding of UK situs assets. This exercise will give the client insight into how quickly their escape plan can be completed if and when it is triggered.
Once their Backup Plan is in place, the Non-Dom client can then decide whether or not they want to go ahead and put the plan into action…and when. Until then they will have the peace of mind knowing that there is a well-thought out plan in place should the worst happen.
Remember, there very well could be a change of UK leadership as a result of the May 5 elections, or a wholesale change of government in 2024. In either case, the chances that the current tax benefits that accrue to UK Non-Doms could disappear are certainly high enough to prompt making a plan, no?