There can be no argument that abolishing the non-dom status in the UK is a real and present danger. A new Labour Government in 2024 will certainly attack the long-lasting international tax perks for wealthy expats who have settled in the UK. However, the question is whether or not the Tory party will kill the Remittance Basis BEFORE Labour gets the chance?
Abolishing the non-dom status | Non-Doms are at risk from both the Labour and Conservative Parties:
Bashing the wealthy is not really Labour leader Sir Keir Starmer’s style. However he has made an exception for those with Non-Dom status. The party has pledged to scrap this “tax loophole” to raise what a London School of Economics study has said is an estimated £3.2 billion a year. Labour has already said how they will spend this annual windfall. Specifically they will use £2 billion to train more NHS staff and offer free breakfast clubs to every primary school in England.
On the Tory side of the aisle, PM. Rishi Sunak has been under pressure to kill the Remittance basis ever since his own wife, was revealed to be a Non-Dom. Recently this pressure has increased exponentially as a result of the tax controversy involving Conservative Party head, Nadhim Zahawi. We should remember that a Non-Dom controversy over a past Conservative Party Chairman triggered a prior Tory government to make significant changes limiting the Remittance Tax basis. At the time, the press recognised that these changes were to “steal Labour’s thunder”.
What happens to tax revenues if the Remittance Basis is abolished?
There is little debate about the unpopularity of the Remittance Tax basis within the UK general voting public. Its abolishment is undoubtedly a populist political winner. However, in the past, cooler ruling heads have looked beyond the short-term political gains. Indeed, they’ve pulled back over real concerns of the long-term negative economic impact.
These prior politicians realised that non-doms do pay tax in the UK; on their onshore earnings, in income tax, national insurance and capital gains. That currently amounts to £7bn a year. In addition, the UK non-doms spend and invest here. Many non-doms are entrepreneur. If they went, they would take their businesses – and the jobs they’ve created – with them.
Will today’s politicians on both sides of the house decide to engage in what historian Barbara Tuchman called, “The March of Folly”
Will They Stay or Will They Go
Whether the abolishment of the Remittance Basis is a net plus or minus centres around the practical question “Will the Non-Doms leave if the UK abolishes the Remittance Basis?” Another way of stating this question is “Will the increased personal tax burden cause a significant loss of Non-Doms who are willing to overcome their UK life inertia?”. Unfortunately these questions can only be accurately answered by first killing the Remittance Basis and then retroactively analysing the economic benefits or damage.
Labour MNP Wes Streeting has argued that Non-Doms would not leave. He pointed to the example of UK PM Rishi Sunak’s wife Akshata Murty. Specifically he noted that she was willing to significantly increase her tax burden rather than do that which was necessary to continue to claim the Remittance Tax basis. As critics were quick to point out, Ms. Murty’s situation was hardly typical. No other Non-Dom is married to the Prime Minister. No other Non-Dom’s decision would probably cause their spouse to lose the highest political office in the UK.
The answer’s in the data (and common sense)
A more honest appraisal would be to look at the Non-Doms who occupy The Times Rich List. Of the top ten wealthiest people in the UK, most are Non-Doms. Now calculate the significant increased tax burden they would incur if the Remittance basis was abolished. Next compare that tax burden against the international jet-set lifestyle that these people currently live. Consider the abundance of tax favourable jurisdictions available to them. If you look at the situation realistically, their lives would alter little if they were to change their tax residence. They could move from the UK to one of many favourable tax regimes in Europe or elsewhere in the world. There they could easily reproduce their current business and personal lifestyles.
There is one clear indication of whether current Non-Doms would leave. We need only look at the 40% drop in the number of UHNW families who’ve chosen to become Non-Doms. Another indication is to look at the number of the wealthiest Non-Doms who chose to leave the UK, when they reached the 15 year limit implemented by the Tories. Recently, even the BBC, quoting leading Non-Dom advisors, questioned the wisdom of abolishing the Remittance Tax system.
What should Non-Doms do to protect themselves?
Those affected by the abolishment of the Remittance Tax basis should act now to create a robust ‘Fire Escape Plan’. This will enable them to swiftly and cleanly leave the UK tax regime. This Fire Escape or Backup Plan needs to take into account that prior tax homes such as Russia, India, or Saudi Arabia may not be attractive future destinations. Whatever the future destination, a key to its long-term viability is that is agreeable to all family members. It should also be flexible enough to be executed immediately upon the announcement that the Remittance Basis will be cancelled.
It is possible that the Conservatives will not kill the Remittance basis before and then win the next election. However, it is worth remembering that there will be future elections. Furthermore, every Non-Dom has a 15 year limit on their enjoyment of this status. In short, the decision to leave or stay is inevitable. It is best to be prepared and maximise optionality.
Many people delude themselves that they can put off death by not signing a will. Similarly those Non-Doms who do not calculate their tax burden without the Remittance basis and compare it to the cost of setting up and executing a Fire Escape Plan, are not doing themselves or their families any favours.
As my grandfather once told me, the secret of success is to “Anticipate the predictable and plan accordingly”.
Get in touch to discuss how we can help you to create a Backup plan.