Election Spurs Proposed Overhaul of UK Non-Dom Tax Regime: Anticipated Changes and Potential Impacts

Written by Andrea Solana, CFP™

Back in March, knowing that the General Election was pending, then Chancellor Jeremy Hunt announced a series of proposed changes to the long-standing ‘non-dom’ regime impacting non-UK domiciled individuals from 6 April 2025. These changes would erase the existing rules along with the remittance basis of taxation and replace it with a system entirely based on tax residence.

The announcement was thought to be an attempt to pre-empt Labour from having a clean slate to announce changes to the regime themselves. The proposals would introduce a 4 year foreign income and gains exemption for individuals who prior to that time were non-UK resident for 10 or more years and include a number of temporary transitional rules for those non-dom individuals who will have already exceeded 4 years of residence but who would not yet be considered deemed domicile under the current regime. The proposals would remove the income tax protections on any trusts considered to be ‘settlor interested’ where the settlor remains UK tax resident. Additionally, individuals would become exposed to inheritance tax on a worldwide basis after 10 years of UK residence as opposed to the current 15 out of 20 year test.

While these proposed announcements were made, everyone knows that until legislation is published and approved, changes remain possible; even more so given that we now know that there is a change in government.  At the time, Labour announced a response indicating their support for some of the foundational elements of the changes, but also their intention to impose some further restrictions on the new regime. Broadly, Labour has indicated the intention to roll back the transitional relief related to foreign income and gains only being 50% taxable for the first year of the regime where individuals have already been UK resident for more than 4 tax years but not yet meeting the current deemed domicile rules. Additionally, they have indicated their intention to no longer allow trusts settled by non-doms to shelter non-UK assets from inheritance tax, regardless of when the trust was established.  But they have also indicated they would like to include additional incentives to encourage UK investment going forward which may include an extension of special ‘low’ rates for remitting previously untaxed funds to the UK.

Outside of potential changes for non-doms, it will remain to be seen what changes Labour announces in relation to various UK tax rates and thresholds. However, with regard to both, we expect more information to come out over the course of the Summer and do not expect to see any official changes announced before September at the earliest as the party has previously noted the desire for the Office for Budget Responsibility (OBR) to thoroughly review any budgets before moving forward and this takes at least 10 weeks.

As always, we will continue to keep our ear to the ground and will share insights and things to be thinking proactively about as we move forward. It remains important to understand the scope of the potential changes and what may directly impact you so that you can give thought to any action steps that you may want to take as a result once further clarity is gained later this year.  If you have any questions about the implications of these potential changes on you, please do not hesitate to contact your Wealth Manager.

 

Important Information

• Nothing in this document constitutes investment, legal or fiscal advice and should not be construed as such.
• This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.
• This document does not take into account the specific goals or requirements of any particular individual.
• MASECO gives no assurance or guarantee that the information is accurate or complete and it should not be relied upon as such.
• Information about tax changes is based on our understanding of the changes announced by the Chancellor.  However, MASECO is not a tax specialist and we recommend that anyone considering investing seeks their own tax advice.
• The extent of the benefit (if any) of the measures announced in the Budget and summarised herein will depend on the individual circumstances of each client and may be subject to change in the future.

MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is established as a limited liability partnership in England and Wales (Companies House No. OC337650) and has its registered office at The Kodak, 11 Keeley Street, London WC2B 4BA.  For your protection, telephone calls are usually recorded.  The partners are Mr J E Matthews and Mr J R D Sellon, Mr A Benson, Mr D R B Dorman, Mr H Q A Findlater, Mr T Flonaes, Mr E A Howison and Ms A L Solana.

 

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