The UK has long offered preferential tax treatment to international individuals who are not originally from the UK, known as UK resident and non-UK domiciled individuals (“Res Non Doms”). This has been a reflection of the contribution to the UK economy by such individuals who come to reside or work in the UK temporarily.
The concept of domicile for UK tax purposes is complex (based on over a hundred years of case law) and there are many traps for the unadvised individual. However, in broad terms, where an individual is clearly non-UK domiciled, they can reside in the UK for a number of years without being subject to UK tax on their non-UK source income and gains, which they keep outside the UK. This is known as the “remittance basis of taxation” as opposed to the worldwide taxation UK resident and UK domiciled individuals are subject to.
Res Non Doms are also generally outside the scope of UK inheritance tax in relation to their non-UK situate assets. They have the option to establish a trust with non-UK assets whilst non-UK domiciled, which protects those assets from UK inheritance tax permanently.
In recent years, the advantageous tax treatment enjoyed by Res Non Doms has become somewhat of a political hot potato.
The current Prime Minister’s wife (Mrs Akshata Murty) was forced by negative press attention to stop claiming the remittance basis (despite appearing to qualify as a Res Non Dom). Making use of a tax treatment not readily available to the majority of British citizens (who would be UK domiciled) was not seen as appropriate for someone occupying 10 Downing Street. Some felt the requirement that a Res Non Dom must have the intention to leave the UK at some stage, (it was reported that Ms Murty would wish to return to India to look after her elderly parents when required) did not demonstrate the expected commitment to the UK for her unique position.
However, despite the adverse media coverage, the current government has not made any significant announcements regarding reforming the tax treatment of Res Non Doms. This is in stark contrast to the Labour Party, whose shadow chancellor Rachel Reeves stated back in 2022 that she would “abolish” the remittance basis of taxation. It is noticeable that her language has since changed to reforming the current tax treatment of Res Non Doms, rather than abolishment. This could mean bringing the UK rules more into line with other European preferential tax systems for international individuals such as those in Italy, Ireland, Portugal and Spain.
In light of heightened global uncertainty and political instability, we are seeing many international clients wanting to explore their options as to investing, relocating or educating their children in the UK. We consider there to be a window of relative certainty of the UK tax rules prior to the next election, which is encouraging clients to take advantage of the current tax rules whilst they still can.