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What should long term expats do about domicile changes in UK?

Stuart Stobie • April 29, 2024
A city skyline at night with a river in the foreground.

Background


UK Chancellor Jeremy Hunt announced significant changes to the UK's taxation regime in the Spring 2024 budget. 

Those changes can broadly be summarised as follows:


 

  •  the abolition of the remittance basis for income tax and capital gains tax for non-UK domiciled individuals; and
  •  possible changes to inheritance tax (IHT) based on residence, not domicile.

 


It is the second of these points that will likely to have a significant impact on long-term British expats and their future tax liabilities.


Key Tax Changes


Income and gains


From 6 April 2025, new UK residents will only be exempt from UK tax on "foreign income or gains" during their first four years of UK residence. 

After that, they will be taxed on their worldwide income and capital gains. 

Transitional arrangements are being made for existing UK residents who are not UK domiciled, but they will also be taxed on their worldwide income sooner than before.


Inheritance Tax (“IHT”)


Another significant change involves inheritance tax (IHT). Currently, IHT is based on domicile and is charged at 40% on the total value of the deceased's estate, after exemptions. 


However, the Chancellor indicated that the government is considering making IHT liability dependent on residence rather than domicile. 

This change could lead to UK residents of 10 years or more paying IHT on their worldwide estates. This shift in policy may have profound implications for long-term UK expats.


Potential Implications


Foreign income and gains


The proposed changes to the remittance basis for income tax and capital gains tax could have wide-ranging impacts on non-domiciled individuals.  A one-dimensional view is that, if non-domiciled status is abolished, then it will lead to increased tax revenues. Indeed, the stated policy intention behind these changes is to increase tax revenue by GBP2 billion.


However, this fails to take into account any behavioural shifts. The elephant in the room here is that many high-net-worth individuals, who are generally internationally mobile, might leave the UK or become non-UK tax residents to avoid increased taxation. It is therefore a high-wire act for the Government.


IHT


Regarding IHT changes, the shift from domicile-based to residence-based taxation may simplify the rules.

At the moment, an expat remains exposed to UK IHT on their worldwide assets whilst they remain domiciled in the UK. Even where they have been expats for a long period of time, this can be a problem because:


 

  • Domicile is sticky – it is difficult to acquire a domicile of choice elsewhere and can be precarious [LINK];
  • Clarity – HMRC will be reluctant to provide a view on this in many cases so one is planning with uncertainty

 


As such, linking IHT is residency, a more objective link, is helpful. If one has been outside the UK for, say, 10 years then it is easy to ascertain the position (depending on the precise nature of the final rules!)  I have hear it suggested that a potential Labour government could extend UK IHT to include anyone holding a British passport, complicating the process for expats seeking to reduce their UK IHT liability. However, I am not sure whether this has any real providence. Recommended Actions for British Expats


General


Given these uncertainties, long-term British expats should consider taking proactive steps to protect their assets and reduce their future tax liabilities.  Due to the shifting tax tectonic plates at play here, there is no definitive answer.

However, depending on their mindset and objectives, an expat might consider the following strategies:


#1 Action Strategy


#1a Obtain Opinion of Domicile


Before making significant financial decisions, expats should obtain a legal opinion confirming that they have shed their UK "domicile of origin" and acquired a new "domicile of choice" in their current country of residence. 

This, from a practical perspective, involves demonstrating a long-term commitment to residing in the new country and forming an intent to stay indefinitely.


#1b Transfer Wealth into Offshore Trusts


Expats who have obtained legal opinions confirming their new domicile might then wish to consider transfer as much wealth as possible into offshore trusts before 6 April 2025.  This approach is expected to be governed by the existing IHT regime based on domicile, providing a safeguard against future tax liabilities. 


One important consideration is that the Labour government has already announced plans [LINK] , contrary to the Government’s proposals, that they will make sure such a trust is within the scope of IHT. This provides a dilemma – do nothing and potentially suffer IHT on worldwide assets or incur costs which, in a worst case scenario, might be wasted.


#3 "Wait and See" Approach 


Given the uncertainty and potential changes (tax and potential governments!), it is understandable that expats might want to adopt a “wait and see” approach. We have sympathies with this approach.

However, it must be understood what is at stake.

As stated above:


 

  •  doing nothing will ensure no professionalfees are wasted – but potentially suffer mean that one is exposed to IHT on worldwide assets; or 
  •  potentially incur unnecessary costs which, in a worst case scenario, might be wasted on ineffective planning

 


Conclusion


These are difficult times for those internationally mobile people with a UK footprint – whether British expats or UK resident non-doms.

The times are, as they say, ‘a changin’. It might well be that your plans have to be ‘a changin’ too.


For more advice on these matters, then please get in touch.

Lakshmi Mittal and the Great British Non-Dom Tax Drama

April 2, 2025
As soon as billionaires start moving out, something strange is afoot. Lakshmi Mittal, the super-rich steel magnate behind ArcelorMittal--the world's largest steel company--is reported to be considering leaving Britain due to a potential end of non-domiciled (non-dom) tax status benefits in Britain. Who Is Lakshmi Mittal Anyway? Mittal stands out as being something special among his fellow billionaires; for years, he's lived comfortably in Britain while taking advantage of non-dom tax arrangements that enable individuals (like himself) to avoid UK taxes on foreign income as long as it was spent within British borders. But these cosy days are over! What Has Changed? Starting April 2025, the UK will transition away from its non-dom system and toward something much less generous. Key changes will include: End of Non-Dom Era: The remittance basis of taxation will be replaced by a new four-year exemption applicable to foreign income and gains from 6 April 2025. Global Assets Affected by UK Inheritance Tax: Transition to residence-based system for inheritance tax means that after being resident 10 out of 20 years, worldwide assets will be liable for IHT. Remittance Basis—Gone: Previously, non doms only paid tax on foreign earnings if remitted to the UK. Though there are transitionary rules to ease the impact, basically now, wherever you earn income, the UK taxman wants a share. Simply put, the party is officially over now folk like Mittal are wondering whether staying put makes any sense. Where Might the Wealthy Go? When your fortune is at stake, you don't make decisions at random; that is why HNWIs such as Mittal are keenly scrutinising places that might allow them to keep more of their cash safely: UAE: No income tax, inheritance tax or wealth tax applies in this region. Portugal: Thanks to its Non-Habitual Residency scheme, sunny Portugal has become an appealing location for individuals who seek tax benefits without compromising on lifestyle. Switzerland and Monaco: Monaco has long been considered a tax haven because of its favorable personal and corporate tax rules. The country does not tax individuals on their income, and corporations within the country have favourable tax treatment. Italy: allows for long-term residence and access to Schengen countries. Under certain circumstances, a flat rate of tax of 7% on all foreign-sourced income is available to new residents of Italy. Why Should the UK Worry? Britain's Reputation at Risk Packing their bags publicly doesn't exactly send out the message that Britain is ready for business; Mittal leaving could prompt other wealthy individuals to consider whether this country remains attractive. Money Matters Every time a billionaire leaves the UK economy, their absence leads to reduced investments, lower donations to charity and less lavish spending - not just with regards to taxes but also economically. Politics The government could run into trouble if new policies are seen to push away wealthy donors with money - not exactly an ideal recipe for voter appeal! What should HNW people be Doing Now? Verify Your Status: Evaluate whether your current tax status remains advantageous under these new circumstances. Clarifying Your Tax Exposure Globally: Fully understand the tax repercussions associated with maintaining or cutting ties to the UK. Consider Alternatives: Assess potential jurisdictions such as the UAE or certain European nations that offer clearer tax regimes without inheritance or wealth taxes. Final Thoughts Mittal's potential exit encapsulates more than simply his tax bill; it spotlights a wider anxiety amongst wealthy individuals Decisions like these require careful thought, proactive planning, and expert advice. Are You Worried About Tax Reform in the UK? Mosaic Chambers Group can provide independent, practical advice tailored to your circumstances.

UK Non-Dom Tax Rules: The End is Nigh, But What Next?

By Andy Wood • April 1, 2025
For over two centuries, the UK’s non-domiciled tax regime and its remittance basis has been a cornerstone of tax planning for wealthy expats and international families. It was introduced, along with income tax, by Willian Pitt the Younger at the very end of the 18th century. It was part of the fiscal firepower necessary to battle Napoleon Bonaparte. And, like income tax, it had pretty much been a constant feature of the UK’s system ever since. But in March 2024, the then Chancellor, Jeremy Hunt, rang the death knell for the remittance basis, with Labour’s Rachel Reeves – who would succeed Hunt a few months later - declaring she would have abolished it anyway. The end is therefore very much nigh for the UK’s non-dom tax regime. More specifically, the end is 6 April 2025. However, out with the old and in with the new’ goes the saying. As such, the ‘what comes next’ will reshape the tax landscape for non-doms, expats, and international investors with a UK footprint (or those considering creating one). What is Domicile (and Non-Domicile)? Domicile is not a straightforward concept like tax residence. The latter is largely about physical presence (or otherwise) in a particular. Instead, as well as physical presence, it also requires an understanding of your future intentions. Is a place somewhere that you intend to live permanently or indefinitely. There are two main types of domicile that I will discuss here: • Domicile of origin: This is inherited at birth, usually from your father (if you think that is misogynistic then I don’t make the rules, OK?). You do not lose your domicile of origin. However, think of it as the foundations of a building. You can a domicile of choice on top it. • Domicile of choice: You build a new domicile of choice by achieving two things. Firstly, by physically residing in place and, secondly, by forming the intention to stay in that same place permanently or indefinitely. Both must be present.
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