‘Petrified’ non-doms poised to flee UK over Labour’s tax plans

[Martin Everson]

https://www.theguardian.com/politics/2024/apr/13/uk-non-doms-uk-labour-tax-plans
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People are jumping on planes right now and leaving,” said Nimesh Shah, the chief executive of Blick Rothenberg, an accountancy firm that specialises in advising very rich “non-doms” on their tax affairs. “I am not being dramatic, they are leaving right now.”
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Miles Dean, a partner and head of international tax at the tax advisory firm Andersen, said his advice to clients was simple: “If you can leave within six months, make plans to leave now. The UK is no longer safe as a tax environment.”

Some of his clients, however, are not prepared to wait that long. “I spoke to two clients yesterday: one elder chap who is moving to Dubai, and another 40-year-old entrepreneur who sold a business a few years back and who is moving next month to Spain under the Beckham’s law regime,” he said.

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You can't make it up. There is no way non-dom millionaires and billionaires are gonna pay UK high taxes when there are more attractive places to live and with better weather...lol. Screw putting your money in an offshore trust as Labour will close that loophole plus UK already has extensive rules preventing offshore trusts being used for tax avoidance....why take the risk?

 

[Sols]

To some people, it's a win either way. Either the wealthy stay and start paying tax or they leave UK. These people think that tax payments will benefit them, and/or if wealthy people leave, costs of living will go down.

Time will tell if they're right.

 

[daniels27]

Of course cost of living goes down in absolute numbers. But look at China. Since housing prices are declining, people stop spending money. At the end of the day, you indeed pay less. But your purchasing power is also much lower. It is called a Phyrrhic victory.

 

[Martin Everson]

Yikes.....I spoke too soon about Labour's potential plans to close the Trust loophole

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Legal experts react to Labour plans to close UK non-dom tax loophole​

https://international-adviser.com/l...abour-plans-to-close-uk-non-dom-tax-loophole/

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Andrew Goldstone, Tax Partner at Mishcon de Reya, said: “The Conservatives’ proposal to retain the inheritance tax advantages of excluded property trusts created by non-doms before April 2025 was very deliberate. Their view is that whilst all long-term UK residents should pay the same tax on all income and gains, there should be a window of opportunity for existing long-term resident non-doms to protect their foreign assets from IHT.

“Otherwise, many wealthy non-doms are likely to leave the UK, taking with them their spending, investment, businesses and employment. This is particularly likely where they are older, unmarried or facing health issues, and where inheritance tax at 40% on their global assets is a genuine concern.

“It’s not clear if Labour’s proposals will affect all existing excluded property trusts or just those created after a particular date. That could be the date of the recent Spring Budget announcement, their own recent announcement, the date of their election, their first Budget or perhaps 6 April 2024. Without knowing how they have calculated the potential annual tax saving of £430m, it’s difficult to tell.”

James Quarmby, partners private wealth & tax at Stephenson Harwood said on LinkedIn: “Shockingly, Labour think the government has been soft on non-doms and is planning to tighten the screws even more should they win the next election.

Here are some of the highlights:

• there will be NO transitional period – the planned 50% reduction for 2025/26 will be scrapped – meaning that non doms will go straight into worldwide tax from April 2025 if they have been in the U.K. for 4 years.
• excluded property trust status will be ended, with the implication that even trusts funded pre April 2025 will lose their IHT exemption. If this is the case then we are looking at truly retroactive tax which is in direct opposition to the promises given by the current Chancellor.
• there is no word about the 4 year period, nor the temporary repatriation facility, which perhaps suggests Labour is broadly content with these.

“We are expecting more granular detail to be announced later today, but if this is the direction of travel then it’s hugely depressing.”

While Anthony Whatling, managing director at Alvarez & Marsal Tax, said: “While the 50% foreign income exemption was designed to ease the transition to new proposed tax rules, Labour’s plan to remove it is unlikely to significantly affect non-doms or prompt them to leave the UK en masse.

“More worrying is Rachel Reeves’ announcement that a Labour government would remove certain inheritance tax benefits for non-UK trusts. This reform could intensify uncertainty, with the prospect of a 40% tax on certain assets more likely to influence non-doms’ decisions to stay in the UK, and casting doubt on the anticipated revenue boost from these changes.”


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The question is whether living in the UK is worth paying 45% income tax, 40% inheritance tax or 20% capital gains tax over living elsewhere with much better tax rates? That's a very very hard sale to make to a non-dom. I would be on the first plane out of London personally and return when rules are clear under a potential future Labour government.

 

[alain]

Some of his clients, however, are not prepared to wait that long. “I spoke to two clients yesterday: one elder chap who is moving to Dubai, and another 40-year-old entrepreneur who sold a business a few years back and who is moving next month to Spain under the Beckham’s law regime,” he said.

I didn't think that 'Beckham's law regime' was legal and that many of the prominent VIPs got huge tax bills because they thought it was legal and was a way to circumvent taxes? What is it that I don't understand now?

 

[Martin Everson]

I didn't think that 'Beckham's law regime' was legal and that many of the prominent VIPs got huge tax bills because they thought it was legal and was a way to circumvent taxes? What is it that I don't understand now?

No idea about that all but my views on Spain are clear. I would take my chances in Tehran before I moved to Madrid.

 

[wellington]

Recently the UK Gov have introduced voting for non-residents who've been outside of the UK for 5+ yrs and lost their right to vote, reminded me of "No taxation without representation" -> their next step, worldwide tax for non-residents.

 

[Martin Everson]

their next step, worldwide tax for non-residents.

That sounds a total plausible step they would take sadly

 

[manukahoney]

their next step, worldwide tax for non-residents.

Doubt it. It's extremely easy to obtain a second citizenship for British fat cats and many of them already have other passport.
They actually tax non-residents now (inheritance tax).

 

[Rotor]

Even if you have a 2nd citizenship, you would still have to renounce your UK one. And in this scenario they would probably make the procedure extremely difficult going as far maybe as imposing some sort of exit citizenship tax.

 

[manukahoney]

Again, doubt it.
Most significant changes in the UK laws are announced and discussed beforehand and when implemented have a grace period, sometimes years.

 

[wellington]

Doubt it. It's extremely easy to obtain a second citizenship for British fat cats and many of them already have other passport.
They actually tax non-residents now (inheritance tax).

If an estate exceed the thresholds, UK Inheritance tax is paid by the estates of someone who is UK domiciled, even if they are not resident in the UK, when they die. Non Uk residents would only be subject to inheritance tax in the UK, if they had UK assets at their time of death.

-> reading between the figs, that's only if domiciled, having citizenship doesn't result in domiciled... (had me worried there for a moment).

Even if you have a 2nd citizenship, you would still have to renounce your UK one. And in this scenario they would probably make the procedure extremely difficult going as far maybe as imposing some sort of exit citizenship tax.

Surely You buy citizenship from Turkey (or similar) - you then obtain a name in Arabic, you then renounce British/other, you then use that and apply for a third citizenship, and then do that in 'traditional English', and renounce Turkish/other.

You've just name hopped three times

 

[manukahoney]

-> reading between the figs, that's only if domiciled, having citizenship doesn't result in domiciled... (had me worried there for a moment).

Exactly.
Why trigger the mass exodus of potential tax payers when you can just tax their next of kin when they die?

 

[Rotor]

Again, doubt it.
Most significant changes in the UK laws are announced and discussed beforehand and when implemented have a grace period, sometimes years.

The change to the non-dom program seems quite short notice I find for a status hundred's of years old.
And when I see Canada that just raised its capital gains tax with just a few months notice, I'm starting to seriously wonder if all these countries do care anymore about appearances and pretenses.

 

[Martin Everson]

And in this scenario they would probably make the procedure extremely difficult going as far maybe as imposing some sort of exit citizenship tax.

Yes they would have to bring in such a U.S style exit taxation upon renouncing citizenship and maybe even for those with just residency permit as in U.S below....lol.

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The exit tax applies to both green card holders (who relinquish their green cards) and covered expatriates (who relinquish their citizenship). This tax is on the built-in appreciation in the properties of an expatriate as if it had been sold for its fair market value on the day prior to expatriation. Where it has a current maximum capital gains rate of 23.8%, which includes the 3.8% net investment income tax and 20% capital gains tax.

Furthermore, exit tax will be triggered if any of the following are true:

• Your annual net income tax for 5 years until the date of expatriation is beyond the specified amount which is $171,000 (for 2020) and will be adjusted for inflation;
• You have failed to certify on Form 8854 which is proof that you have complied with all the U.S. federal tax obligations for 5 years before the date of the termination of your residency or expatriation.
• Your net worth is $2,000,000 or more at the time of your termination or expatriation.

If you have failed any of the above criteria, you will be designated as a covered expatriate by the Internal Revenue Code (IRC). In this case, you will be subject to the exit tax on the net unrealized profit in your property as if it had been sold for its fair market value on the day preceding the expatriation date.

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[Alonzo]

going as far maybe as imposing some sort of exit citizenship tax.

Very unlikely to happen.

 

[wellington]

Very unlikely to happen.

With the debt in the UK and how they use populist vote buying - highly likely to happen.

 

[manukahoney]

With the debt in the UK and how they use populist vote buying - highly likely to happen.

Exactly why it's not happening. The left are relying on the votes from immigrants and exit tax will be hugely unpopular amongst them.

 

[Martin Everson]

With the debt in the UK and how they use populist vote buying - highly likely to happen.

Exactly UK government debt is out of control and someone has to pay for all those free covid jabs, track and trace BS during pandemic and support given to Ukraine. Your simply not gonna be allowed to up and leave without baring some of the responsibility for the debt in the future. It's just not gonna be that easy in future.

P.S Get out while you still can

 

[Martin Everson]

Yup 100% get out of the UK now if your a non-dom . I would not take a wait and see approach.

https://conventuslaw.com/report/uk-non-dom-changes-what-have-labour-said-and-what-should-i-do-now/
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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:

1. 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.
2. 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.
3. 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:

1. Making dynastic gifts, outright or into trusts, family limited partnerships or family holding companies
2. Excluding themselves and/or others from benefit of existing structures
3. Rationalising complex arrangements
4. Rebasing assets
5. Accelerating distributions from trusts and companies while the remittance basis remains
6. Assessing potential investment wrappers to achieve tax deferral
7. 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.


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