The non-domicile regime was a colonial-era law that allowed individuals, with their domiciles outside the UK, to not pay taxes on income earned overseas.
Jeremy Hunt, in last week’s budget, announced the abolition of said regime, cutting the tax break from 15 years to just 4. The decision will come into effect by April 2025. After a temporary ‘repatriation facility’ that will allow non-doms to pay just 12% of their income for one year, all income earned abroad will be taxed at 50%, which is very aggressive but Hunt believes that this promotes fairness and still remains competitive with other countries.
The move has left wealthy ‘non-doms’ in a kerfuffle who want to live in the country while taking advantage of their lower taxes. This would inexplicably mean that these people would start looking for new havens, with European countries offering attractive tax relief.
The policy was one of the Labour Party’s main points on their agenda and has been nicked by the Tories as the elections are fast approaching.
While this is a positive for the country’s budget as more money is brought in, the main problem arises if the current non-domiciles decide to leave the country as a result of the change. It is worth noting that non-doms bring in skills and expertise as well, and losing those things could be detrimental. Some believe that the non-domiciled would be happy to pay taxes because they’re attracted to the country itself, which while true, does not hold true for the entire population.
According to the Office for Budget Responsibility, approximately 20% of current non-doms who will be affected by this policy will leave the country.
Additionally, this has further implications for inheritance tax. Presently, a person is only eligible for inheritance tax after being a tax resident for 15 years. Changes to this mean that the incentive for people to come into the country for a longer period is no longer as attractive if it is changed.
Photo by Nick Fewings on Unsplash
