It is crucial for non-doms residing in the UK to reassess their financial arrangements due to the growing uncertainty surrounding their status. To prepare for an unpredictable future, it is essential to keep their financial arrangements under review. With mounting public debt, high levels of inflation, and rising costs, policymakers are under immense pressure to raise taxes for public services. As a result, non-doms are right to be concerned about their way of life and the heightened scrutiny they face. As taxpayers, it is vital to plan and take proactive measures to safeguard their financial wellbeing.
The Labour Party has announced its intention to remove non-dom status if elected at the next UK General Election. This must take place no later than 28January 2025. If elected, this will mean UK non-doms could effectively become domiciled. Consequently, their global income and gains would fall under UK taxation whilst potentially becoming exposed to inheritance tax on assets held abroad.
It’s feasible that some non-doms may be caught off guard after a lengthy period of stability. Non-doms living in the UK for less than a decade may not have considered returning to their overseas residence before the ’15 out of 20 years’ criteria that considered them domiciled. However, given the growing ambiguity surrounding non-dom status, and the possibility that the UK might transition to a higher tax economy, non-doms may need to re-evaluate their plans.
Here are five reasons why UK non-doms should review their financial arrangements without delay:
Plans take time to change and implement
It is possible that some individuals who are not domiciled in the UK may assume that they have ample time to arrange their return to their home country. The ’15 out of 20 years rule’ is commonly known and understood by most UK non-doms, and they tend to keep these timeframes in mind. However, what would occur if this rule was unexpectedly abolished, and non-dom status in the UK was eliminated?
To safeguard their tax position as much as possible, non-doms must have a contingency plan in place to protect their worldwide income and gains in the event of an abrupt change in the system. This plan should consider what leaving the UK would entail and how it could impact their finances. On the other hand, if they choose to remain in the UK, what measures can they take to safeguard their finances? Such plans necessitate careful planning and take time to develop, so it is recommended to begin as soon as possible.
Flexible Solutions
It’s common for non-doms to arrive in the UK with the intention of staying for a few years. However, plans change. For example, they may get married, start a family, enrol their children in a school in the UK, or have business interests that they are keen to observe or develop. Ultimately, this will strengthen their ties to the UK.
When considering future residency and employment options, tax status may not be the primary concern for certain non-domiciled individuals. Some may even prioritise safeguarding their assets and wealth for their families or future generations and are open to exploring various strategies. To begin charting a path forward, it is crucial to conduct a thorough assessment of each person’s unique personal and financial goals.
Maximising tax-efficient vehicles and reliefs
It would be prudent for non-doms who are committed to life in the UK to explore and utilise tax-efficient funds and reliefs, where possible. Conducting a thorough review of their financial situation may reveal potential opportunities for tax planning.
One beneficial option for non-doms who have children attending a UK school could be to create an Educational Bare Trust. This involves creating a tax-free fund with the child as the sole beneficiary, which can be used to cover their school fees and other related educational expenses, tax-free.
Similarly, non-domiciled individuals who plan to invest in a new business in the UK or expand an existing one can benefit from Business Investment Relief. This scheme is aimed at incentivising entrepreneurial investment and allows for tax exemption on remittances to the UK. It is advisable for eligible individuals to take advantage of this relief while the non-dom regime is still in place.
Safeguarding offshore assets
By establishing an Excluded Property Trust (EPT), non-doms that are concerned about becoming UK deemed domiciled can protect their wealth and assets by ensuring their offshore assets are placed in a trust. This will enable these assets to stay outside of the scope of UK inheritance tax (IHT). EPTs provide an extra layer of assurance and once set up, any assets it holds is not subject to UK IHT. This is irrespective of the non-doms’ future domicile status.
Future planning
To secure the future of their families and the next generation, UK non-doms should consider formally documenting their status as a non-dom with a Domicile Statement. This will ensure their status can be defended even after their death.
It would be unwise for individuals to assume that being a non-dom ten years ago means that they still hold that status today. Seeking ongoing remittance advice is particularly crucial to avoid jeopardising non-dom status in the future when bringing money into the UK.
If you have any queries or questions regarding the above, please get in touch with Craig Hughes, or use the contact form below: