After those four years expire, individuals will become liable to UK tax on their worldwide income and gains.
This will include liability in relation to income and gains realised by certain offshore trusts and companies that have been set up by non-doms.
The inheritance tax regime is also going to change with the concept of domicile being abolished and liability to IHT on worldwide assets instead applying after 10 years of UK residence, with a 10-year tail for those who subsequently leave the UK after that period.
What are the concerns from nom-doms?
Many individuals who move to the UK from abroad set up asset holding vehicles such as offshore companies and trusts.
These structures offer valuable succession planning and asset protection advantages, which are often the key drivers for establishing these vehicles.
Under current UK tax rules, offshore income and gains generated within these structures have typically not been taxable unless remitted to the UK.
Moreover, offshore trusts holding non-UK assets are generally outside the scope of UK IHT.
From April 6 2025, under the current proposals, individuals who have been living in the UK for more than four years, and who have previously set up offshore trusts and companies on the basis of existing UK tax rules, will find themselves with a new ongoing tax bill for the income and gains generated by these asset holding vehicles.
The new chancellor, Rachel Reeves, further stated before the election that Labour would bring existing offshore trusts within the scope of IHT, citing an increase in tax revenues as a result.
However, such a proposal will have the effect of bringing, within the scope of IHT at 40 per cent, non-UK assets held within many offshore trusts.
There could also be ongoing periodic charges of up to 6 per cent, which would result in double IHT exposure.
While UK resident non-doms may have accepted the income tax and capital gains tax charges on their offshore trusts, it is this sudden imposition of IHT (and fears of double charges to this tax) that is proving too much for many.
This is already prompting some to consider other more favourable jurisdictions to move to. An exodus of the wealthy, and resulting dwindled tax revenues, depends on how far the new government goes with these changes.
What would a more attractive regime look like?
It is widely considered that the proposed four-year regime is simply too short to encourage individuals to put down roots in the UK and stay here long term.
People may move to the UK on a purely temporary basis and then, after the four-year period expires, relocate to another more favourable jurisdiction for a longer period.
However, if the proposed regime was instead for a period of around six or seven years, individuals would be more likely to end up settling in the UK, where they would inevitably contribute further to the economy by spending, investing and paying UK taxes.
