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This is a challenging time for ‘non-doms’ in the UK – those individuals which reside in the UK but are registered non-domiciled for the purposes of tax on overseas income.
The 2024 Spring Budget saw the Chancellor abolish non-dom tax status in a bid to bring more tax into the Treasury from internationally mobile, high-net-worth individuals with potentially significant non-UK income.
Newmans’ Practice Manager, Lianne Bullard, said: “Investment into and out of the UK makes up a major portion of funding available to businesses and innovators. Inward FDI was valued at a total of £2 trillion in 2023, while outward FDI totalled around £61.8 billion, indicating the importance of free-flowing investment.
“Non-doms, despite valid concerns around preferential tax treatment for the wealthiest and most mobile individuals, contribute substantially to investment in UK businesses – with estimates of up to £7 billion contributed since 2012.
“It is therefore important that we balance the need for a fair tax system with encouragement to invest for those with the most power to shape the future of businesses.”
The vital transition period
New regulations mean that, eventually, non-domiciled individuals will need to pay tax on all income in the UK, coming under the scope of a residency-based system.
Under current proposals, an income tax discount of 50 per cent on foreign income would be extended to non-doms who have previously claimed under the remittance basis.
The remittance basis, allowing non-doms to pay tax only on UK income and gains, will be abolished from 6 April 2025, so the transition period provides an essential opportunity for the Government to encourage investment into the UK and UK-based businesses by high-net-worth individuals.
The Temporary Repatriation Facility will also allow those with unremitted income made before 6 April 2025 to remit it and pay tax on this income at a reduced rate of 12 per cent.
Additionally, individuals who have been non-UK resident for tax purposes before becoming a UK tax resident will benefit from a four-year exemption from UK tax on foreign income from 6 April 2025.
“This transition period is going to be crucial,” continued Lianne. “Although non-doms make up a small proportion of the population in the UK, they are frequently business owners and investors who have chosen to live in the UK and invest in the economy due to this tax treatment.
“Going forward, we need to be careful that new policies don’t make it prohibitively challenging for these individuals to invest in UK innovation and businesses.
“In particular, we hope to see support for such investment in the future for international individuals and UK businesses.”
Investment as funding
Why do we seek to encourage investment in businesses by international individuals? To remove barriers to growth.
“Private investment is a significant driver of growth for businesses,” said Lianne. “When enterprises struggle to access traditional loans, public funding or to reinvest through profit, they may seek investment from private sources, which can include firms or ventures run by non-doms.
“Preferential tax treatment is one of the ways that the Government decided to stimulate this type of investment. While it, understandably, hasn’t been received well and is now on the way to being abolished, there is the risk that these individuals may choose to take their investment – and taxable income – out of the UK.
“With our global focus, we can achieve a balance of tax planning which supports an individual’s wealth, the needs of their investment projects and those of our wider society.”
Lianne finished: “Whether individuals are looking to create jobs and set up their own businesses for invest in existing enterprises, we’re here to help ensure that their tax arrangements are as efficient as possible and recognise their significant contribution to economic development.
“We have placed ourselves in the unique position to offer both in-house expertise and third-party support.
“Private investment is an excellent funding opportunity for businesses across all sectors as well as for internationally mobile individuals, so we seek to encourage this at all levels.”
For support for non-doms and investing internationally, please contact our team today.