Non-doms: will the Government dilute its proposals?

Insight

30.09.2024

We have previously written that the new UK Government is due to announce reforms to the taxation of non-domiciliaries (see here), which will take effect from 6 April 2025. It has been anticipated that these reforms would be radical, with the Labour Government’s proposals going further than those presented by the previous Conservative Government.

However, there has been speculation over recent days, emanating principally from the Treasury (the UK’s finance ministry), that the Government has taken note of the number of non-doms planning to leave the UK and may be considering diluting its proposals as a result. In this briefing we consider the possible changes to the proposals.

Possible changes to non-doms proposals

It has been suggested that the Government might adopt two aspects which were included in the Conservative Government’s proposals earlier this year but did not find their way into the Labour Government’s policy paper of 29 July. They are that non-doms will be taxed on only 50 per cent of their foreign income for the first year of the regime and that existing trusts will provide ongoing protection from inheritance tax.

There is also some speculation that the proposed “10-year tail” for inheritance tax will be reduced. This refers to the length of time it takes for the worldwide assets to fall outside the scope of UK inheritance tax after long-term residents leave the UK. The idea that it would take an individual leaving the UK 10 years to shake off the UK inheritance tax treatment which applies to residents has provoked a great deal of concern.

Status of non-doms proposals

It is important to note that there has been no formal policy announcement along these lines and Government sources have made it clear that no final decisions have been taken. While it is encouraging that the Government appears to be considering a more pragmatic approach, it is unlikely that we will know the exact shape of the new regime for non-doms until Budget Day (30 October).

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.