The exact shape of what the replacement for the UK's non-dom system will be is still full of grey areas, but advisors – and their clients – cannot afford to delay taking steps to prepare for what may come.

Yes, the subject of resident non-domiciled persons in the UK refuses to go away. Following the announcement of the UK government’s programme of legislation, questions are left unanswered about what the new Labour administration will do.The Chancellor of the Exchequer, Rachel Reeves, wants to replace the non-dom system with a different one. The former Conservative government said it wished to take this course; however, the parliamentary timetable for any legislation was upended by former Prime Minister Rishi Sunak's decision to hold a general election on 4 July.  (See commentaries here, here and here.)

Laura Walliss (pictured), senior knowledge lawyer, Stevens & Bolton, says that whatever grey areas exist, inaction is not an option for advisors and clients. 

The editors of this news service are pleased to share these insights; the usual editorial disclaimers apply. To respond and join the conversation, email tom.burroughes@wealthbriefing.com

The conspicuous absence of any reference to the proposed reform of the taxation of non-doms in the King’s Speech on 17 July 2024 should not be taken as a signal that the new Labour government has lessened its resolve to proceed with the changes. It is still likely that the changes will come in to effect from 6 April 2025, and the continued dearth of information only serves to create more uncertainty for the non-doms who will be affected – and their advisors.

The broad scheme of the proposed reforms is now widely understood and does not bear repeating here. Suffice to say, the changes will have a significant, often detrimental, impact on the finances of non-doms. A number of non-doms are already leaving the UK, or deciding not to come, in anticipation of the worst suggested version of the changes (which includes the removal of IHT protections for many offshore trusts).

For those who wish to stay, significant planning may be necessary to limit the negative impact of the changes and take advantage of any limited concessions which are made available. However, with no further detail made public, and everyone still waiting for draft legislation (which may or may not be published before the new government’s first fiscal event, which will likely be no earlier than mid-September), many non-doms feel paralysed by uncertainly. There is a real risk that many will not start to take action until more detail is known, by which time the window for action may be too narrow.

There are now fewer than nine months before the changes are expected to take effect. While that may seem a long time, it is not. The government estimated that there were 74,000 individuals claiming non-dom status on their self-assessment tax returns in the tax year ending in 2023. Each of those individuals will have a different, complex fact pattern and will require individual advice – there is no “one size fits all” approach to advising on this area.  

Advisors will therefore be limited in time and limited in the number of non-doms to whom they will be able to provide advice. Non-doms who have not already engaged an advisor should do so without delay – especially as with increased regulation of client due diligence, in particular where trusts are involved, onboarding clients can sometimes take a significant amount of time.

Once an advisor is engaged, non-doms should take stock of their current position so that they and their advisors can act rapidly once further detail is announced. As part of this auditing, there are several areas which should receive attention. 

Firstly, it is essential for non-doms and their advisors to understand clearly their key (non-financial) aims. For instance, how long do they want to stay in the UK, what capital do they need to fund this, and what level of tax exposure are they willing to accept to achieve it? Looking to the past as well, it is important to clarify how many tax years they have already been UK tax resident, and to establish if they have claimed the remittance basis during that time.

Thinking more specifically about financial considerations, it is key for all parties to understand their asset base, including the location of assets, whether they are standing at a loss or a gain, and whether they are liquid or illiquid.

Added to this, trust structures of which non-doms are settlors or beneficiaries must also be considered. For example, they should look at: who the other key parties are and where they are resident; what the trust assets are and where they are situated; who the trustees are and whether they are already onboarded as clients; and lastly whether there is any scope to collapse the trust.

The next action point is to prepare for the proposed Temporary Repatriation Facility (or equivalent). In case this is indeed introduced in due course, it would be beneficial for affected individuals to think now about how much they would hope to bring into the UK, and which assets would be most appropriate to use.

Finally, these concerns around non-dom status of course do not exist in isolation – and individuals must ensure that their other advisors, e.g. accountants and financial advisors, are also kept in the loop.

The above recommended actions are merely a starting point, but they give a good indication of just how much preparatory work needs to be undertaken before proper advice can be given – and how long this could take. Non-doms and advisors who continue to wait may well find they have found it too late to act.