Following the then-Conservative government's announcement in the March Budget that it would abolish the remittance basis of taxation, non-domiciled individuals living in the UK and their advisers have been grappling with the impact of these proposed changes.
The recently elected Labour government confirmed before the election that it was broadly in agreement with the proposals.
While the changes did not figure in the King’s Speech, more details of the proposed regime, including draft legislation and hopefully a consultation on inheritance tax, are anticipated in the Autumn Statement.
What is the remittance basis of taxation?
The remittance basis of taxation has been a feature of UK tax legislation for more than a century.
It has been available to non-UK domiciled individuals, who come to live in the UK and who, broadly, regard their permanent home as remaining outside the UK.
When claimed, foreign income and gains realised by those individuals are not liable to UK tax provided these are not remitted to, or enjoyed in, the UK.
There are around 37,000 individuals who claim the remittance basis in the UK and they paid about £6bn in income tax, capital gains tax and national insurance contributions in 2020-21.
Contrary to reports in the media last year about the tax paid by the former prime minister's wife, the remittance basis is not a tax loophole, but an integral part of tax legislation applicable to individuals who make the UK their temporary home.
The widely appreciated downside of the remittance basis is that it has deterred individuals from investing in the UK as they have been able to minimise their UK tax bills by retaining, outside the UK, the income and gains they have generated abroad.
While the new regime has the potential to generate increased investment in the UK, it will be important for our new government to strike the correct balance between encouraging individuals to move to the UK and ensuring the new system is attractive enough to entice them to stay.
If the government does not succeed in this balancing act, there are many other countries in Europe and elsewhere in the world that will welcome our non-doms with open arms, offering more favourable tax regimes to encourage them to move.
Dubai, Italy, Spain, Portugal, Switzerland and Monaco are among those with attractive tax rules to attract the wealthy.
The proposals
Under the proposed changes, individuals coming to live in the UK (and who have been non-resident for the previous 10 years) will benefit from no UK tax on their foreign income and gains (even if these are remitted to the UK), for the first four years of UK residence.
This is a significant change to the current remittance basis and will encourage individuals to bring offshore funds to the UK.
Unlike the current remittance basis regime, it would also be available to UK expats living abroad who decide to return to the UK having been outside the UK for at least 10 years.
