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

[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
.

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 all︀ income and gains, there should be a window of opportunity for existing long-term resident non-doms︁ to protect their foreign assets from IHT.

“Otherwise, many wealthy non-doms are likely to leave︂ the UK, taking with them their spending, investment, businesses and employment. This is particularly likely︃ 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 will︅ affect all existing excluded property trusts or just those created after a particular date. That︆ could be the date of the recent Spring Budget announcement, their own recent announcement, the︇ date of their election, their first Budget or perhaps 6 April 2024. Without knowing how︈ 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, Labour︉ think the government has been soft on non-doms and is planning to tighten the screws︊ 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 scrapped︋ – meaning that non doms will go straight into worldwide tax from April 2025 if︌ they have been in the U.K. for 4 years.
  
• excluded property trust status will be︍ ended, with the implication that even trusts funded pre April 2025 will lose their IHT︎ exemption. If this is the case then we are looking at truly retroactive tax which️ 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 certain︀ inheritance tax benefits for non-UK trusts. This reform could intensify uncertainty, with the prospect of︁ a 40% tax on certain assets more likely to influence non-doms’ decisions to stay in︂ 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 tax︅ rates? That's a very very hard sale to make to a non-dom. I would be︆ on the first plane out of London personally and return when rules are clear under︇ a potential future Labour government.

 

[alain]

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]

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]

That sounds a‌ total plausible step they would take sadly 😕

 

[manukahoney]

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]

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).

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

You've just name hopped three times 😉

 

[manukahoney]

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

 

[Rotor]

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]

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 gains︀ rate of 23.8%, which includes the 3.8% net investment income tax and 20% capital gains︁ 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 the︂ specified amount which is $171,000 (for 2020) and will be adjusted for inflation;
  
• You have︃ failed to certify on Form 8854 which is proof that you have complied with all︄ the U.S. federal tax obligations for 5 years before the date of the termination of︅ your residency or expatriation.
  
• Your net worth is $2,000,000 or more at the time of︆ your termination or expatriation.
  

If you have failed any of the above criteria, you will︇ 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 your︉ property as if it had been sold for its fair market value on the day︊ preceding the expatriation date.

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[Alonzo]

Very unlikely to happen.

 

[Wellington]

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

 

[manukahoney]

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]

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 damn_(

 

[Martin Everson]

Yup 100% get out of the UK now if your a non-dom eek¤%&. 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 have︀ set up trust structures, even if created decades ago and even if they are unable︁ to benefit from them.

It is possible and perhaps probable that Rachel Reeves also considers︂ it neither desirable nor necessary to announce any detailed proposals in advance of the election︃ 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 the︄ year, there will be little time for any detailed thinking, consultation or drafting of new︅ rules before Jeremy Hunt’s intended start date of 6 April 2025. When George Osborne announced︆ the ‘end of non-doms’ in July 2015, his new rules did not take effect until︇ April 2017 and, even then, many of them did not become law until after the︈ changes had taken effect.

An incoming government would have three options:

1. To press ahead with︉ changes to take effect without consultation from 6 April 2025 in a Finance Bill that︊ may not receive Royal Assent before that date.
   
2. To announce the abolition of the remittance︋ 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 be︍ delayed until a later date.
   
3. Delay any implementation of the new rules until a consultation︎ 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 of︀ existing structures
   
3. Rationalising complex arrangements
   
4. Rebasing assets
   
5. Accelerating distributions from trusts and companies while the︁ remittance basis remains
   
6. Assessing potential investment wrappers to achieve tax deferral
   
7. Winding up trusts or︂ other structures
   

Any planning, new or historic, involving trusts will clearly need careful consideration to︃ evaluate the anticipated benefits, given the potential for the creation of additional IHT charges that︄ may not otherwise be due.

Many non-doms will be considering bringing forward the date that︅ they leave the UK, this also requires significant planning and an understanding of the︆ tax and immigration rules of different jurisdictions. Many countries now offer preferential tax regimes for︇ migrants – those not living in the UK will have a good range of options︈ if they choose to relocate. For those who do choose to leave, it may pay︉ to get ahead of the crowd, with school places and property prices in desirable locations︊ likely to come under pressure from this new source of inpatriates.

What should not be︋ done now?

For non-doms and their advisors alike, there will be a temptation to fill︌ the vacuum of uncertainty that will exist until the new rules are announced. Rumours will︍ abound. However, given that there is no necessity or even incentive for Rachel Reeves or︎ Jeremy Hunt to announce or even formulate detailed proposals, they are likely to be just️ 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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[jafo]

I'm starting to wonder if they will begin taxing passport holders, too, the way the‌ US is doing. If they do, I just simply won't renew since I have other‍ options. Also, I will NEVER EVER step foot in the UK again. Family visits would⁠ be over. F*ck that! hi%#