Estate agency warns against non-dom tax reform

Jeremy Hunt

Several reports suggest that the chancellor Jeremy Hunt is considering plans to overhaul the non-dom tax regime in his Budget announcement this week.

The move is widely viewed as political given that Labour has already pledged to scrap non-dom status if it were to win the looming general election.

There are about 78,700 non-doms in the UK and the latest HMRC figures revealed that they paid a record £12.4bn in the 2021-22 tax year. But it is worth noting that the number of individuals with non-dom status of some kind has fallen from 137,000 in 2008.

Non-doms pay tax on UK source income and gains, but can elect only to be taxed on foreign income and gains if these are ‘remitted’ to the UK under the remittance basis claim.

At present, the claim can be made at no tax cost for the first seven years of UK residence, then at a charge of £30,000 per annum for the next four years, and £60,000 for another two years.

Once non-doms have been UK resident for 15 years, they start to be taxed on the same worldwide basis as UK doms.

There are a number of reform options, including full scale abolition of the remittance basis system, reducing the remittance basis threshold and time limiting the lump sum rule.

Rachel de Souza, tax partner at RSM UK, said: “The boldest approach would be to scrap the remittance basis system entirely and replace it with a new system.

“Going forward, anyone moving to the UK could have the option to pay a lump sum amount of tax which covers all their non-UK source income and gains. The amount of the lump sum is debatable, but £100,000 per annum (or equivalent) is used in other countries and so it could be set at that level.

“The lump sum option could be time limited so that it is only available for, say, the first 10 years of UK residence, which is similar to the existing remittance basis rules.

“This approach would have the benefit of raising revenue without scaring very wealthy non-doms that currently live here into moving overseas.’

“An alternative approach would be to retain the remittance basis but reform access to it. This could be done by bringing forward the timing of when the charge to access the remittance basis applies. The chancellor could introduce a lower charge of, say, £10,000 from the year of arrival and increase the charge for each subsequent year until the remittance basis is no longer available.

“If we follow the existing rules, that would be at year 16, but the length of time the remittance basis is available could be reduced to, say, 10 years.

“Again, this approach would raise revenue by making more people pay and by encouraging more individuals to opt out of the remittance system altogether.

“From a tax perspective, both options have advantages and disadvantages, but both would also be relatively easy to introduce and to operate.

“From a political perspective, the lump sum option has the added advantage of removing direct tax breaks for non-doms entirely, pre-empting Labour’s plans of scrapping the non-dom rules.”

While removing the tax benefits for non-doms could be a popular measure, it is likely to have a negative impact on high net worth foreigners who could decide to relocate and leave the UK for lower tax jurisdictions, and that in part is why Winkworth want to see the chancellor reconsider its plans when it comes to non-dom status.

Dominic Agace, chief executive of Winkworth, said: “The government should be careful about steps that will discourage successful wealth generators, who by their very definition are not tied to the UK. It’s highly likely it would cause many to just choose another country to base themselves and we will lose the benefit of their wealth generation and not raise the monies required. Undoubtedly, this would be a negative for London’s international allure and, in turn, London’s property market.”

Dominic Agace

Outlining measures Winkworth would like to see in the Budget, he added: “We expect to see support for first time buyers with a help to buy update or mortgage guarantee scheme, allowing those that can afford mortgages but can’t raise the deposit to get on the ladder.  This will also support demands to ensure housebuilders deliver homes for first time buyers. The lifetime ISA and 25% bonus on £4k invested per year limited to £450k properties needs to be tweaked and simplified to allow for price growth. A cut to income tax appears heavily flagged which will support the UK recovery in 2024.

“The Chancellor needs to introduce tax incentives through inheritance tax or stamp duty concessions to encourage downsizers and stimulate a healthy flow through the property market.

“The return of mortgage interest relief will ensure there remains enough supply in the private rental sector for demand and a healthy mix in the housing market in our cities, to enable young professionals to start their careers, bringing vibrancy and international appeal to London and other major cities.

“A revision to  stamp duty thresholds is vital to reflect the fact  that a £1m property is very different in different parts of the country. Due to the cost of property in London,  young families  are being affected because they need space for growing families. The capital should not be a city just for the very wealthy.

“We must continue to encourage a global London to attract international buyers to invest and/or live here – avoiding punitive moves that will affect the delicate balance of the market and all the suppliers and services which benefit from high net worth buyers.Many house builders rely on international investors buying at an earlier stage to ensure the viability of a scheme. The investors also contribute to the homes available for private renters.”

 

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