18 June 2024
Dear 50 International,
War brings innovation and our altercation with Napoleon created national taxation as Pitt the Younger sought to fund our defence. Thus, in 1799, a graduated national tax began of 2 old pence in a pound of 240 pennies and 24 pennies per pound on income over £200.
Initially, only foreign income was taxed if ‘remitted’ into the UK. In 1914 the Finance Bill limited ‘remittance relief’ to non-British subjects on rental income, stocks and shares only (it continued on all other income) and income tax was changed from ‘citizenship’ to ‘domicile’. Parliament ruled that those domiciled outside of the UK should remain on a remittance basis! The UK-domiciled resident only lost the remittance basis in 1974. Meanwhile, the non-domiciled continued to enjoy unrestricted remittance basis on foreign income and, from 1965, with the start of Capital Gains Tax, on foreign gains.
Now from 6th April 2025, the remittance basis will fundamentally change. Consequently, some will leave for the flat tax visa-based rates of Italy and Portugal, the low tax regimes of the Far East or the beguilingly tax-free Middle East. However, in Europe, global tax escapees are creating distortions in house prices, inflation and social cohesion; thus these breaks may not last. In the Middle East social and cultural restrictions, indirect taxation, rigid legal penalties and the increasing impact of Climate Change must be considered. Although shadowed by China the Far East is more benign but a long way from home.
Thus on exiling, geo and economic politics need to be carefully accounted for with migration, re-onshoring, ageing populations, new tech and AI stressing many a fraught national economy. Accordingly, think carefully about defined and protected rights as well as lifestyle. In short, don’t let the tax tail wag the dog!
In reality, the old UK regime gave non-doms little incentive to invest in the UK. Now as governments need to encourage inward investment change was overdue.
With the implementation of the new non-dom rules being staggered, take the opportunity for a strategic review for both the short and longer term. In this carefully review UK statutory exemptions and reliefs. In this corporate structuring for family wealth has huge opportunities as to share classes, dividend payments and Inheritance Tax should be seriously utilised
Additionally, in this period, fully understand what might be done to protect off-shore assets and the family's relationship with these. This includes opportunities to rebase capital values and the restoration of exempt capital. Also, anticipate and plan for expenditure needs for the foreseeable future and the opportunities to plan for these.
The time perhaps for active investing with much gained by understanding and working with the new rules in the context of the family operating corporately rather than as passive non-dom beneficiaries.
Pitt hoped for a tax raise of £10 Million (some £955 Million today). In the event, the 1799 take was broadly £6 Million. Let’s see what this tax change raises!
All the best
Alistdair
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