The favourable remittance basis of taxation available to those who are classified as non-domiciled but resident in the UK can trace its roots back to the late 18th century and the desire to shelter overseas assets from wartime taxes. Jump forward to 2023 and the propriety of these rules is being brought into sharp focus and has become the subject of much debate – not dampened by the Prime Minister’s wife, the daughter of a billionaire, availing herself (quite legally I should add) of the benefits of the regime. The “non-dom” tax regime went through significant changes in 2008 and 2017 but there is clamour for further action to be taken.
What is the remittance basis of taxation? This is where a non-UK domiciliary’s foreign income and/or gains are not taxed in the UK until they (or assets representing them) are brought (“remitted”) to the UK for the benefit of the relevant non-dom or people closely connected to them (wife, children, etc). This status can be claimed for up to fifteen years of residence but there is a £30,000 charge from year eight and a £60,000 charge from year thirteen.
What is domicile? This is acquired from your father if your parents were married at birth – this is your domicile of origin. It is not citizenship – although this may come into it. It is where someone resides permanently or indefinitely. As an adult you can replace your domicile of origin with a domicile of choice if you physically reside elsewhere on a permanent or indefinite basis. There are many nuances to the rules but this is a high level summary.
Sir Keir Starmer and his colleagues in opposition have targeted the “res non-dom” tax regime and declared abolition of the same should they get into power at the next general election but without providing any detail on what they would bring in to replace it. This makes the issue something of a political hot potato. Proponents of the current regime argue that post Brexit and Covid, UK plc needs to advertise itself as being fully open for business attracting international talent and investment wherever possible. Others argue that the rules are outdated and favour the super-rich; the champions of abolition have already converted the non-doms’ unremitted income and gain into tax receipts forgetting that they will simply jump back onto their private jets and leave the UK for more attractive shores with more benign tax regimes. Italy, Dubai, Portugal, Malta (to name but a few) all have their own “residence/domicile” tax regimes and are proving extremely popular with those looking to avoid being taxed on a worldwide basis which can in some instances trigger double taxation.
Perhaps Rishi Sunak will steal Labour’s thunder and prior to the election abolish the current “outdated” regime in favour of a ten-year short term visitors programme – akin to similar rules in Spain, Italy, Israel, Greece, Switzerland et al … with reduced rates of income tax for an initial period of time and smoothing rules for capital gains tax in the form of rebasing values on arrival. Thereafter the toxicity of the words “non-dom” may be put to rest and replaced by a practical means of attracting inward investment for a meaningful but crucially limited amount of time.