A leading tax lawyer has called on both major political parties to deliver clarity on their plans for the non-domicile tax status – a tax regime which exempts UK residents who are not permanently settled here from paying tax and capital gains on income earned abroad.
Jon Shankland, private wealth partner and tax lawyer from national law firm Weightmans, says that wealth is already leaving the country due to uncertainty over the UK’s future tax regime.
It follows the recent launch of the Labour Party election manifesto which pledged to close the remaining loopholes in the non-dom status.
He said: “Neither Labour nor the Conservatives have nailed their colours to the mast and stated exactly what reforming the non-dom status will look like. This is putting the financial best interests of our country at risk needlessly.
“Wealth is already leaving the country. Part of that is genuine fear that Labour’s approach will be very hard line, but for many it’s not knowing where they stand that’s causing nervousness. Aside from the changes to taxation of international individuals who have a presence in the UK, there are proposed changes to the long term taxation of offshore vehicles like trusts, that have been established by international clients prior to becoming domiciled in the UK; it is these yet unconfirmed and unsubstantiated changes that are causing the most significant upheaval and concern.”
In May, chancellor Jeremy Hunt announced that the current regime for the taxation of tax resident but non-UK domiciled individuals, would be abolished and replaced by a new foreign income and gains regime and a new ‘residence-based test’ for Inheritance Tax. It was proposed that from the coming 2025/2026 tax year, new residents to the UK could avoid all tax on foreign income and capital gains for four years but thereafter have to pay tax as normal on all of their worldwide income and gains as they arise, subject to several temporary relief provisions.
In addition, the concept of domicile is to be abolished as relates to taxation and UK inheritance tax is to be based on long term residency: those being tax resident in the UK for 10 or more tax years being subject to UK Inheritance Tax on their worldwide estate, this would remain the case for 10 years even after such individuals then left the UK.
Labour has criticised the plan, claiming it contains loopholes that equate to millions of pounds in lost taxes. However, in their recent manifesto they do not provide any further detail as to how their proposals for non-dom tax reform would look.
Shankland said: “We need clarity from both main parties quickly or wealth that could have benefited the UK economy, either through taxation or investment, will continue to jump ship, or not even consider the UK in the first place.”
