Despite having a positive global reputation and a proven history of attracting wealth and talent, the UK’s non-dom system has long needed reform.
'Domicile' is a complicated and outdated concept whilst the remittance basis encourages people to move to the UK but keep their wealth elsewhere.
In announcing reform, the chancellor had a rare opportunity for a triple win: introducing something more popular; raising more tax; and increasing the UK’s attractiveness internationally.
I fear that opportunity has been missed and that, by announcing changes to take effect after the upcoming general election, the government has manufactured significant uncertainty in a sector which craves stability and the ability to plan for the long term.
The good
But let’s start with the positives. If enacted, the proposals will clearly improve aspects of the old system.
Domicile is hard to define and subjective. Most people are 'domiciled' where they intend to live out the end of their days.
In contrast, 'residence' is a more objective criteria which is easier to test (often coming down to the number of days spent in the UK).
The switch from domicile to a residence based test is therefore sensible.
It should simplify the rules, increase certainty and remove some arbitrary distinctions (for example, the new regime will be open to those moving to the UK permanently, whereas the current rules only benefit those moving here temporarily).
The repatriation facility (which allows past foreign income and gains to be brought into the UK and taxed at 12 per cent rather than up to 45 per cent or 20 per cent) is also welcome.
Most of the funds in question will never be brought onshore without some kind of amnesty, so in practice the UK can either incentivise repatriation by taxing them at a low rate or offer no incentive and not tax them at all.
The bad
The biggest missed opportunity is the length of the 4-year regime for new arrivers: the period is too short and ends with a cliff-edge.
The chancellor described this as “one of the most attractive offers in Europe” but I doubt that the people he is targeting will agree.
Italy and Greece both offer 15 years and for many high-net-worth individuals the €100,000 p.a. charge there is good value. There are other generous regimes in Europe.
Additionally, those moving to the UK must consider inheritance tax.
Many countries do not charge this or have lower rates than we do. Emigrants to Italy or Greece might ultimately pay 4 per cent or 20 per cent but someone moving to the UK could be exposed to a 40 per cent tax on everything they own after 10 years of living here (and for a further 10 years after departing).
