Following Jeremy Hunt's announcement at the Spring Budget on 8 March 2024 that he would reform the taxation of non-UK domiciliaries, current non-doms and those thinking of moving to the UK have been left wondering what the changes mean for them and when they will actually take effect.
Following the Budget, the Treasury released a briefing note on the proposals. Our analysis of that note can be found here. This remains the only substantive briefing on the reform of the taxation of non-doms released to date by either party. Whilst the remittance basis was proposed to be abolished and a new four-year foreign income and gains (FIG) regime introduced in its place, certain wide-reaching changes to inheritance tax (IHT) were also pencilled in, although critically the announcements provided for a short window in which trusts could be set up before April 2025 and remain outside the scope of IHT.
The Conservatives' plans are largely scheduled to take effect from 6 April 2025. This will be after the date of the next General Election and within the purview of a new government, of uncertain hue.
In the usual scheme of things, these proposals would be subject to consultation, perhaps with drafts of proposed legislation followed by a Finance Bill, which would ultimately become law. While the Treasury announcement promised further consultation on certain areas, there was no commitment to a timetable and it is not clear that any such consultation would take place before the next election (whenever that may be).
It may be that Jeremy Hunt considers that he has achieved his (political) aim of undermining Labour's plans by stealing one of their headline tax policies (the reform of the remittance basis) and spending the additional tax generated on his preferred tax cuts, so that an incoming Labour administration cannot spend it on public services. On that basis, any proposed consultation may not be scheduled before the election.
Labour's objections
In the meantime, the Labour Party, with the principal plank of their additional revenue having been removed, have avoided making any detailed comment as to what they would propose as an alternative.
While signalling their general approval of the FIG Regime, this week the Labour party have intimated that they would look to close certain 'loopholes' in the Conservatives' policy. Details of what Labour actually propose remain unclear, but the limited comments carried by the press do point towards the potential for excluded property trusts (whenever settled) to come under attack, a likely point of great sensitivity for many UK long-stayers. This would have far-reaching consequences for UK residents who have set up trust structures, even if created decades ago and even if they are unable to benefit from them.
It is possible and perhaps probable that Rachel Reeves also considers it neither desirable nor necessary to announce any detailed proposals in advance of the election and that the spoils can be left to the winners, once they are known.
What will happen after the election?
With the election likely scheduled for the end of the year, there will be little time for any detailed thinking, consultation or drafting of new rules before Jeremy Hunt's intended start date of 6 April 2025. When George Osborne announced the 'end of non-doms' in July 2015, his new rules did not take effect until April 2017 and, even then, many of them did not become law until after the changes had taken effect.
An incoming government would have three options:
- To press ahead with changes to take effect without consultation from 6 April 2025 in a Finance Bill that may not receive Royal Assent before that date.
- To announce the abolition of the remittance basis and the broad scope of its replacement, but then consult on the detailed implementation. Some changes could take effect under anti-forestalling measures from 6 April 2025, others may be delayed until a later date.
- Delay any implementation of the new rules until a consultation has been undertaken, likely to April 2026 or later.
So what should be done now?
Under any analysis, affected non-doms will face a continued period of uncertainty and should be prepared for this uncertainty to continue until after the election and, importantly, likely until after it is too late for them to take remediating action. If any action is to be taken (and action will need to be taken) preparations will need to be made now.
Depending on their personal circumstances, non-doms considering remaining in the UK after 2024 should consider doing or preparing to do the following:
- Making dynastic gifts, outright or into trusts, family limited partnerships or family holding companies
- Excluding themselves and/or others from benefit of existing structures
- Rationalising complex arrangements
- Rebasing assets
- Accelerating distributions from trusts and companies while the remittance basis remains
- Assessing potential investment wrappers to achieve tax deferral
- Winding up trusts or other structures
Any planning, new or historic, involving trusts will clearly need careful consideration to evaluate the anticipated benefits, given the potential for the creation of additional IHT charges that may not otherwise be due.
Many non-doms will be considering bringing forward the date that they leave the UK, this also requires significant planning and an understanding of the tax and immigration rules of different jurisdictions. Many countries now offer preferential tax regimes for migrants – those not living in the UK will have a good range of options if they choose to relocate. For those who do choose to leave, it may pay to get ahead of the crowd, with school places and property prices in desirable locations likely to come under pressure from this new source of inpatriates.
What should not be done now?
For non-doms and their advisors alike, there will be a temptation to fill the vacuum of uncertainty that will exist until the new rules are announced. Rumours will abound. However, given that there is no necessity or even incentive for Rachel Reeves or Jeremy Hunt to announce or even formulate detailed proposals, they are likely to be just speculation and only proven correct by luck rather than judgement.
Such speculation is no basis for sensible planning. Instead, non-doms will need to undertake a risk-based analysis of their future, identify potential actions and make preparations before it becomes too late. Implementation may be left to a later date, but only by preparing now. Such preparations should be made urgently, but cautiously.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
