Non-doms in the UK should be reviewing their arrangements and structures

As of May 2024, 55 percent of people in Great Britain said that they thought it was wrong to leave the EU. There was a concern at the time that the public was not given accurate information about the potential impact of Brexit, which appears to have been borne out by the current statistics. 

The non-dom rules are not a loop hole. The UK has extensive legislation that sets out the advantageous tax treatment non-doms can utilise.

A non-dom is an individual not originally from the UK who does not have the intention to reside here permanently. A lot of non-doms reside in the UK for as long as the tax rules are favourable to them. It is logical that they would seek to leave once these rules are abolished.

The government has relied on the Warwick report and joint research with LSE for projecting revenue from abolishing non-dom status.

It is a shock to see researchers state that they have "established" the cost of abolishing the non-dom rules, rather than acknowledging that any such research is simply guesswork. 

The report relied on historical HM Revenue & Customs data on individuals who claimed non-dom status between 1997 and 2018.

However, the proposed rules would be far more averse to the non-dom community than previous changes and will severely impact the attractiveness of the UK as a destination for the internationally wealthy.

To go from up to 15 years of beneficial tax treatment to the proposed four years is too dramatic. The suggested inheritance tax changes also represent a profound change to non-doms who are used to being able to protect non-UK assets, particularly those acquired in a structure prior to ever setting foot in the UK. 

The current uncertainty as to the taxation of non-doms is already impacting transactions in the property market, listings on the London Stock Exchange and school and university applicants.

The UK has a sophisticated professional services industry (which our economy is reliant on) which services non-doms. Some of these individuals have also started to relocate, following their departing non-dom clients. 

The wealthiest non doms are job creators, significant taxpayers and big spenders. It is for this reason that many other jurisdictions (including Italy, Greece and Portugal in the EU) are bending over backwards to welcome the UK's departing non-doms.

It is interesting that despite the EU's aim of creating a level playing field of taxation they have not cracked down on these favourable tax regimes, clearly aware of how important they are to those members' economies. 

Some jurisdictions (such as Abu Dhabi) have even provided offers of financial support to list on their stock exchange (rather than in London), and others (such as Geneva) have opened up housing in exclusive areas that are usually only reserved for local residents. 

These countries clearly recognise the economic contribution wealthy non-doms generate and how easy it is for them to move.

The current longer period of being able to claim the remittance basis allows people to lay down roots and encourages them to stay here long term. Four years however is not long enough to educate children and for most people to become sufficiently attached to the UK to begin paying tax on a worldwide basis.

Some of the wealthiest non-doms have openly stated that they would be prepared to stay in the UK and pay more tax than they currently do, by paying a flat rate of tax each year for a set number of years (similar to the current 10-year regime in Italy).

They would be prepared to pay potentially more than double the Italian annual rate (€100,000) (£84,590) to remain in the UK. Any government would be wise to rethink how to raise more revenue from these individuals and keep them in the UK.

In light of the election and non-dom proposals, current non-doms in the UK should be reviewing their arrangements and structures, and making use of the existing rules while they are still available.

Dhana Sabanathan is a private wealth partner at Michelmores LLP