The potential abolition of non-dom status has raised significant concerns among financial advisors and high-net-worth individuals residing in the UK. According to Mark Clubb, chairman of TEAM, a senior tax accountant has expressed apprehension, stating that no one with substantial wealth should remain in the UK under current proposals. These impending changes signal a turbulent period ahead, where obtaining solid tax advice becomes more critical than ever to avoid costly missteps.
The non-dom status is one of the oldest tax statuses in the UK, originally introduced to attract international business to London. This status has allowed foreign professionals, such as American bankers, to contribute to the UK economy without being burdened by UK inheritance tax, leaving their tax obligations to their home country. However, if this status is abolished, many of these professionals may choose to relocate, potentially impacting the UK’s tax revenues.
Equally concerning is the proposal to eliminate business property relief, which has been a crucial aspect of estate planning, particularly for family-owned companies and farming estates. Business property relief has historically allowed these businesses to pass down assets to the next generation without an excessive tax burden. Should this relief be removed, heirs could face substantial tax bills on the assets they inherit, impacting the future of mid-sized family businesses and agricultural landowners who have relied on this relief for generational planning.
For example, a third-generation business owner with diversified interests, such as a Midlands-based haulage company, farms, and pubs, could find it impossible to pass these assets on without incurring prohibitive taxes. Without business property relief, the burden of these taxes could lead to a significant shift, with some farmers and business owners choosing to abandon their UK operations altogether.
As a result, many UK-domiciled individuals are considering offshore relocation. However, changing domicile is no simple task. A UK-domiciled individual is subject to inheritance tax on worldwide assets upon death, as well as capital gains tax on any profits from UK-based assets, regardless of their residence or nationality. To effectively shift one’s domicile, an individual must sever all ties with the UK—owning no property, earning no UK income, and even avoiding requests for ashes to be scattered in the UK.
The complexity of these rules means that financial advisors often present relocation options that may not fully address individual circumstances. Suggestions range from moving to countries like Portugal or Malta, known for favourable tax regimes, yet these recommendations are not one-size-fits-all. A tax-friendly regime today may not remain stable, as tax policies can change with political shifts. For instance, Portugal’s much-touted Non-Habitual Resident (NHR) status faced potential abolition in 2022–23, only to be somewhat preserved by the government toward the end of 2023.
There are also signs of potential changes within the UK tax framework itself. Martin O’Malley from Neba Private Clients notes that the UK government appears to be shifting towards a residence-based inheritance tax system. This would mean that even after an individual leaves the UK, their worldwide assets could remain under UK inheritance tax for up to ten years. Beyond this period, expats’ non-UK assets might finally fall outside the UK tax net, presenting a potential opportunity for those living abroad.
Navigating these complexities requires more than basic robo-advice. The rules, especially around domicile and inheritance tax, are nuanced, and HMRC’s approach is often inconsistent, requiring each case to be examined individually. TEAM provides guidance for expatriates and anticipates a growing trend in wealth migration as Western governments look to bridge funding gaps by altering tax policies affecting the wealthy.
Exploring the wide range of residency-by-investment opportunities available worldwide can be daunting, with approximately 100 countries, including 60% in Europe, offering various schemes. Selecting the best option requires detailed, personalised advice. The stakes are high, and for those in pursuit of a smooth transition, avoiding tax pitfalls is essential.
Te potential for significant tax policy changes has sparked concern and preparation among UK non-doms and business owners. While relocation may seem attractive, it is far from straightforward, and careful planning remains essential to avoid adverse tax consequences in an uncertain and evolving regulatory landscape.
TEAM plc (LON:TEAM) is building a new wealth, asset management and complementary financial services group. With a focus on the UK, Crown Dependencies and International Finance Centres, the strategy is to build local businesses of scale around TEAM’s core skill of providing investment management services.
