At Nomad Capitalist, we are noted for our guides to going offshore, acquiring a second residence, and finance & investments. But our articles also include news stories. We want to share with you what is happening in the world and how it impacts your financial freedom.
The UK’s Non-Domicile Tax Program is under scrutiny. Yes, UK tax is making the headlines again in the run-up to the Autumn Budget.
Discussions are still taking place, but the plan is for the autumn statement to announce amendments to non-dom status in Britain. The word in the corridor of powers is that HNWIS will only be able to avoid tax on their worldwide income for five years in the future. This is ten years less than the current regulations allow.
This is one of the options on the table of the Treasury’s high-net-worth individuals policy team.
The chancellor, Jeremy Hunt, is also considering reducing the tax-free threshold for shareholders’ earnings from dividends from its present level of £2,000. In a reversal of prime minister for 15 minutes Liz Truss’s commitment to give the wealthy tax cuts, Hunt has declared that “those with the broadest shoulders should be asked to bear the greatest burden.”
Capital Gains Tax
In addition, there are calls for Jeremy Hunt to implement modifications to capital gains tax. This profit taxation would see HM Revenue & Taxation rake in extra billions if capital gains rates began to mirror income tax rates.
The Office of Tax Simplification introduced this idea in 2020. However current prime minister Rishi Sunak, then chancellor, blocked the proposal.
Conservatives Taking Risks With Tax Breaks
Non-doms entered the public lexicon with the scandal of Rishi Sunak’s wife Akshata Murthy who infamously didn’t pay income tax on much of her income while a UK resident. It has almost become a dirty word in the murky world of the British government. If Rishi Sunak is seen as rewarding non-doms, this could become quite the political hot potato.
The definition of non-doms is British residents who claim on their tax return that their domicile, permanent home, is abroad. This qualifies them for special tax treatment aka the remittance basis. Non-doms have become the pariahs of UK taxpayers.
In April 2022, Murty consented to future payment of tax on all worldwide income in future. This allowed her to avoid backdated payments. But she agreed to pay UK taxes on all her foreign income, including dividends from her Infosys shares. This non-dom regime had saved her over £2m a year, if estimates are to be believed. The dividends earned Murty over £11m a year.
Prior to this, Murty shelled out an annual fee of £30,000 for the non-dom status, making her exempt from paying UK tax on her overseas income. Under the present rules, her non-domiciled tax status would expire after living in Britain for 15 years.
Labour Tax Break Concerns
The opposition Labour Party, with opinion polls predicting a comfortable election win, has gone on record as insisting that it would abolish the loophole. This would help to fund their ambitious spending plans.
Shadow chancellor Rachel Reeves believes getting rid of the tax break would raise £3.2bn a year in extra funds. The beleaguered National Health Service would benefit from an increased workforce.
However, Labour needs to come up with a new strategy for housing temporary residents.
Andy Summers, associate professor at LSE Law School has argued that “by rewarding non-doms for keeping their investments abroad, the current tax rules harm our economy.” The country would benefit from the raise in funds due to new tax liabilities.
Summers contributed to a recent London School of Economics report that the non-dom system benefited those who claim non-dom status to the tune of £10.9bn a year in offshore income. By paying a fee to be allowed to file tax on a remittance basis, they ensure that they only pay tax on income brought into the UK.
What Rishi Sunak, who has himself enjoyed non-dom status, and Jeremy Hunt have committed is the freezing of tax thresholds until 2028, a U-turn on a previous pledge until 2026. As inflation sees people enter higher tax brackets or pay tax for the first time, it would raise money from millions with a figure of an extra £5bn forecast. This has lead to predictable criticism of the UK government launching a “stealth tax”.
At Nomad Capitalist, we are all over the latest developments in taxes. Where current tax rules in the UK may harm your investments abroad, we can recommend a non-dom regime elsewhere.
You shouldn’t need to pay UK tax if there are tax breaks available as incentives for high-net-worth individuals offered by an altogether different tax regime.