How the Treasury could minimise the adverse impact of the non-dom reforms.
At the beginning of last week, there were some reports in the national press that the Chancellor was reconsidering aspects of the FA 2025 reforms to the taxation of foreign domiciliaries. In particular, it was tentatively suggested that the Treasury has come to realise that the new inheritance tax provisions were likely to be responsible for an enormous number of departures and consequently a reduction in the tax paid by UK residents. While this is not a surprise to many of us who advise such clients, it has prompted an interesting debate. Is any reform too late; and what, if it is to be effective, must change?
For some leavers it will, of course, now be too late. For others, the uncertainty is now too great to expect them to return. In my view, however, and based on an imperfect sample, there will be a significant number of recent leavers – and potential arrivers – who would be likely to resume or extend their UK tax residence if the IHT provisions change. If such a change were accompanied by the introduction of a new investor visa with income tax and CGT benefits, I can see a real opportunity to turn back the tide.
Some instability in tax systems is priced into people’s behavioural responses. The non-dom regime changed hugely in 2008 and 2017 but in both times the changes were sensible, so few people left. Those who have gone to Italy are hardly guaranteed long-term stability. The target constituency are people who are truly internationally mobile, many of whom left reluctantly and some of whom have retained London houses and have simply ducked out of the UK tax net by becoming non-resident in the period between October 2024 and April 2025. They are people who should be here, and who want to be here, but not at the cost of IHT at 40% on death in a jurisdiction where they do not intend to die; and on trusts which have been settled with foreign assets – in many cases, long before they became resident here in the first place.
The challenge, then, is how to correct the position, assuming the political will has arrived. An easy starting place would be to grandfather existing excluded property trusts as at Budget day on 30 October 2024. I suspect, however, that would be inadequate to reverse a behavioural trend which has now gathered steam, when moving brings other wider tax advantages.
Politically, it will be difficult to resile from the concept of long-term residence after a decade. The 10-year tail, however, is obviously problematic – being both hugely off-putting and frankly very difficult to enforce and so expensive for HMRC. It should be abolished both for trust settlors and, more broadly, individuals.
Similarly, the fact that trusts drop in and out of the relevant property regime with the settlor’s long-term residence position is irrationally punitive and provides a compliance and economic headache for trustees around the globe. It is easy to tweak. The excluded property status of a settlement should be fixed by the settlor’s status when property becomes comprised in the settlement – a rule approved as not at all surprising under the old law by the Court of Appeal in Barclays Wealth Trustee (Jersey) Ltd v HMRC [2017] EWCA Civ 1512.
The Treasury should take the opportunity, at the same time, to formulate clearer rules and provide sensible guidance around the application of estate duty treaty relief for foreign property and trusts.
A regime under which individuals pay IHT on personal assets after living here a decade, and for as long as they remain tax resident, is a fair one and provides clarity, which was missing under the old law. A regime where long-term residents create relevant property settlements but people who are not long-term resident can still settle excluded property trusts equally levels the playing field without punitive effect. Those achievable changes might just be enough to fix the problems of the Finance Act for IHT.
Of course, income tax and CGT benefits in other countries will still lead to departures and will still prevent some of those, who have now gone through all the upheaval of leaving, from returning: it is clearly time also to embrace the concept of an investor visa with a remittance basis attached to it, probably – for certainty – also for a decade.
For the avoidance of doubt, this is not an endorsement of the Reform UK party’s suggestion, on Monday, of a ‘Britannia Card’ or its associated promised tax treatment. The best that can be said of that is that it maintains investor visas as an item on the news agenda.
How the Treasury could minimise the adverse impact of the non-dom reforms.
At the beginning of last week, there were some reports in the national press that the Chancellor was reconsidering aspects of the FA 2025 reforms to the taxation of foreign domiciliaries. In particular, it was tentatively suggested that the Treasury has come to realise that the new inheritance tax provisions were likely to be responsible for an enormous number of departures and consequently a reduction in the tax paid by UK residents. While this is not a surprise to many of us who advise such clients, it has prompted an interesting debate. Is any reform too late; and what, if it is to be effective, must change?
For some leavers it will, of course, now be too late. For others, the uncertainty is now too great to expect them to return. In my view, however, and based on an imperfect sample, there will be a significant number of recent leavers – and potential arrivers – who would be likely to resume or extend their UK tax residence if the IHT provisions change. If such a change were accompanied by the introduction of a new investor visa with income tax and CGT benefits, I can see a real opportunity to turn back the tide.
Some instability in tax systems is priced into people’s behavioural responses. The non-dom regime changed hugely in 2008 and 2017 but in both times the changes were sensible, so few people left. Those who have gone to Italy are hardly guaranteed long-term stability. The target constituency are people who are truly internationally mobile, many of whom left reluctantly and some of whom have retained London houses and have simply ducked out of the UK tax net by becoming non-resident in the period between October 2024 and April 2025. They are people who should be here, and who want to be here, but not at the cost of IHT at 40% on death in a jurisdiction where they do not intend to die; and on trusts which have been settled with foreign assets – in many cases, long before they became resident here in the first place.
The challenge, then, is how to correct the position, assuming the political will has arrived. An easy starting place would be to grandfather existing excluded property trusts as at Budget day on 30 October 2024. I suspect, however, that would be inadequate to reverse a behavioural trend which has now gathered steam, when moving brings other wider tax advantages.
Politically, it will be difficult to resile from the concept of long-term residence after a decade. The 10-year tail, however, is obviously problematic – being both hugely off-putting and frankly very difficult to enforce and so expensive for HMRC. It should be abolished both for trust settlors and, more broadly, individuals.
Similarly, the fact that trusts drop in and out of the relevant property regime with the settlor’s long-term residence position is irrationally punitive and provides a compliance and economic headache for trustees around the globe. It is easy to tweak. The excluded property status of a settlement should be fixed by the settlor’s status when property becomes comprised in the settlement – a rule approved as not at all surprising under the old law by the Court of Appeal in Barclays Wealth Trustee (Jersey) Ltd v HMRC [2017] EWCA Civ 1512.
The Treasury should take the opportunity, at the same time, to formulate clearer rules and provide sensible guidance around the application of estate duty treaty relief for foreign property and trusts.
A regime under which individuals pay IHT on personal assets after living here a decade, and for as long as they remain tax resident, is a fair one and provides clarity, which was missing under the old law. A regime where long-term residents create relevant property settlements but people who are not long-term resident can still settle excluded property trusts equally levels the playing field without punitive effect. Those achievable changes might just be enough to fix the problems of the Finance Act for IHT.
Of course, income tax and CGT benefits in other countries will still lead to departures and will still prevent some of those, who have now gone through all the upheaval of leaving, from returning: it is clearly time also to embrace the concept of an investor visa with a remittance basis attached to it, probably – for certainty – also for a decade.
For the avoidance of doubt, this is not an endorsement of the Reform UK party’s suggestion, on Monday, of a ‘Britannia Card’ or its associated promised tax treatment. The best that can be said of that is that it maintains investor visas as an item on the news agenda.
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