As press interest in the UK’s favourable “non-dom” regime reignites, we look at the government’s previous responses to political and social pressure to review the remittance basis of taxation and speculate as to what might be next for the UK non-doms. 

The recent press attention surrounding the Chancellor of the Exchequer’s wife’s, Akshata Murthy, domicile status has thrown the remittance basis into the headlines. However, for many of us advising in this area, it feels all too familiar. 

Here is our potted history of the topic and predictions for the future.

The remittance basis of taxation, whereby foreign income and gains are outside the scope of UK tax to the extent that they are not remitted to the UK, has been in place for those who are not domiciled in the UK (often referred to as “non-doms”) since 1914. It was in the spotlight in 1988 (during a Conservative Government) and again in 2002 (during a Labour Government).

Paying a fairer share – the first changes to the remittance basis of taxation

The first substantial changes though were made to the remittance basis in 2007 when both the Liberal Democrats and the Conservatives (both opposing parties) proposed changes in manifestos. The Conservatives proposed a flat-rate charge of £25,000 and, with the expectation of an upcoming General Election, Labour subsequently announced in its earlier-than-planned Pre-Budget Report the introduction of a flat-rate £30,000 charge for those wishing to avail of the regime, alongside further defining and curtailing what constitutes a taxable remittance.  

Business Investment Relief – a positive change to the remittance basis

In the wake of the financial crisis and following David Cameron’s “Britain is back open for business” plea to the World Economic Forum in 2010, Business Investment Relief was introduced with effect from 6 April 2012 to allow non-domiciled individuals to remit foreign income and gains tax-free if they were invested in qualifying UK businesses. 

Further tightening of the concept of domicile

The domicile regime once again faced criticism in the press following revelations of several high-profile taxpayers claiming non-UK domicile status. In the Summer Budget 2015, George Osborne announced that “British people should pay British taxes in Britain” – bringing into force a number of changes, with the most publicised being a cap at 15 years a non-dom living in the UK could claim the remittance basis of taxation.  

What might be next for the remittance basis of taxation?

Many would argue that the reason for its continued existence is the same reason other countries, such as Italy and Portugal, which offer a favourable tax regime for people who wish to relocate there – the continued wish to attract talent and investment into the UK. 

According to HMRC’s published statistics, it’s estimated that “in the tax year ended 2020, there were 75,700 individuals claiming non-domiciled taxpayer status in the UK” and those individuals “were liable to pay £7,853 million in UK [Taxes]” – an average of over £100,000 in personal income tax and capital gains tax per non-dom, not including the potential tax from indirect taxation, property, and business.

With a backdrop of Brexit, the pandemic, and rising living costs, it seems difficult to believe that the UK might now wish to potentially discourage future talent attraction.

Labour has been quick to announce its position should it be in government – it was widely reported that it would “abolish” the regime but further commentary seems to suggest a shorter-term scheme for temporary residents would be more likely. 

Where does that leave non-doms now?

On the basis we are not in the lead up to a General Election, we may need to wait sometime to see party manifestos shedding more light on the future of the remittance basis.  

A complete abolishment feels dramatic, but a further cap on the number of years available (Portugal’s non-habitual regime is currently available for 10 years) may seem more palatable. Alternatively, the concept of domicile could be de-linked from the remittance basis to modernise the regime, instead of linking to the less contentious concept of residence. 

Existing non-doms may therefore want to “wait and see” what’s in store, however, those who are more cautious or with particularly complex tax affairs may wish to review their current circumstances to ensure that they remain agile to any changes coming down the line. In previous rounds of reform, grandfathering provisions (to essentially stabilise the transition to a new regime) have been a frequent feature so, whilst obviously not without risk, some may want to act now under any perceived certainty the current law offers them.