Two changes – the end of the UK resident non-domicile system and the end of the old Tier 1 investor visa regime – combine to make the UK a less attractive place for such persons and therefore hurt the country, the authors argue.

The following article, which examines the recent end to the UK’s resident non-domicile system, and the increasingly onerous visa system, argues that the UK is hobbling itself as a jurisdiction in competing with others for talent and capital. It is a familiar complaint, and this news service concurs with the analysis. That said, the editors of this news service don’t necessarily endorse all views of guest writers, so please respond if you wish. Email the editors at tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

The writers are Rosie Todd, private wealth partner, and Kerry Garcia, head of employment, immigration and pensions, at Stevens & Bolton.


Rosie Todd

Kerry Garcia

The government’s proposal to scrap the remittance basis of taxation for non-doms and replace it with a new, shorter regime has come under fire from a variety of sources. The Labour party has maintained throughout both their election campaign and their time in office so far that the impact would be small – indeed claiming that only 77 non-doms would leave the UK. However, the climb-down by Chancellor of the Exchequer Rachel Reeves at Davos in January (with the suggestion that the new tax-advantaged regime might be lengthened from the proposed four years), seems to indicate that the government is finally waking up to the fact that the changes might lead to an exodus of wealthy individuals from the UK, and the impact that this would likely have on tax receipts. 

That impact will be even greater if the unfavourable tax treatment and tighter immigration laws also deter wealthy individuals from coming to the UK in the first place.     

What are the changes? The remittance basis of taxation was a very attractive regime. It meant that individuals could move to the UK in the medium term without subjecting their worldwide estate to UK income tax, capital gains or inheritance tax. Essentially, for the first 15 out of 20 years, their UK tax exposure was limited to UK income/gains and inheritance tax on UK assets.  

The new “Foreign Income and Gains Regime” (or FIG Regime) does not offer the same benefits. Yes, it means that all income and gains (including UK income/gains) are free from UK tax, but the period is limited in length – currently four years, although the Chancellor has recently suggested this will be increased. It also used to be possible for non-doms to create offshore trusts to shelter their non-UK assets from UK inheritance tax – this planning tool will be removed by the new regime. For many non-doms, the reaction seemed to be that, while they might begrudgingly live with the lifetime tax changes, subjecting their entire worldwide estates to UK inheritance tax was a step too far.  

When thinking about the economic impact of the move to the FIG Regime, the government’s first concern is the risk of exodus. This is heightened by the outlook of this particular group – non-doms are internationally mobile and aren’t afraid to relocate to a country which offers better incentives. When compared with other jurisdictions, it feels as though the UK is losing the competitive advantage which the non-dom rules had historically brought.  

Take Italy: in December 2017 it introduced an investment visa programme which offers a two-year visa (which can be renewed for an additional three years) for non-EU citizens who invest in strategic assets. These new residents can also enjoy the benefits of the “flat tax regime.” Under this regime, they can choose to pay an annual lump sum of €200,000 ($205,845) (recently raised from €100,000) and, in return, do not have to pay Italian tax on their non-Italian income and gains. The “flat tax regime” can apply for up to 10 years of residence. Unless the new UK FIG Regime is significantly extended to nearer 10 years, it is not going to compare favourably.

In addition to the fear of departures, the government also needs to have an eye on the pull factors to the UK – is the proposed tax regime going to do enough to attract new internationally mobile individuals to relocate here? For some, the prospect of four years of not paying UK tax might be enough – they can come, enjoy the English weather(!) and then depart before they have to hand over their cash to HMRC – but this doesn’t give an incentive for someone to stay longer term. For those with families or children in education, the prospect of having to move again in short order and uproot kids from schooling is not particularly appealing. If the aim is to attract wealthy families to the UK and for them to help grow the economy, not incentivising them to stay in the medium to longer term is an oversight.  

Movement getting harder
It’s also increasingly difficult for wealthy individuals to move to the UK in the first place. Unlike many European countries, including Portugal, Greece, Italy, Hungary, Malta and Cyprus, the UK no longer has an investor (or golden visa) scheme. Perhaps surprisingly given the desire to grow the economy, there are very few options available for wealthy individuals to emigrate to the UK on a long-term basis (unless they have, for example, a British spouse or partner). Other immigration routes have very specific and often onerous eligibility requirements, many of which are not applicable to wealthy individuals considering moving to the UK, and most routes require the main applicant to undertake work in the UK. Importantly, if the long-term goal is to settle in the UK and subsequently to obtain British citizenship, individuals usually need to spend at least five years in the UK and there is a requirement to spend no more than 180 days in any year outside of the UK (and even less if the aim is naturalisation). 

This is very different to other jurisdictions where individuals may be able to obtain permanent residence, and sometimes even citizenship, through investment and without the need to spend lengthy periods living and working in the country. The fact that meeting the day count requirements for immigration purposes will almost certainly lead to UK tax residence makes this even less appealing to many. Those wishing to apply for settlement may also be deterred by the fact that they and adult dependants must first pass a Life in the UK test and meet English language requirements. Unfortunately, post-Brexit, the value of obtaining a British passport has also diminished as British citizenship no longer has the additional advantage of enabling the individual to live and work through the EEA and Switzerland. 

The government has indicated that, like its predecessor, its focus is on reducing net migration and there is no indication that they will reintroduce any form of investor or golden visa scheme. However, in January Reeves announced that the government is intending to publish an immigration white paper later this year setting out changes to entice more highly skilled workers to come to the UK. It seems unlikely, though, that this will be enough to attract wealthy individuals to come to the UK. 

The UK needs wealthy international individuals, and the investment they can bring to the country. However, both the immigration rules and the proposed tax rule changes seem likely to put people off coming to the UK, or force those already here to consider leaving for economic reasons. Like many advisors, we hope that the government will give serious consideration to how it can make the UK more competitive and more attractive.

About the authors

Rosie Todd leads Stevens & Bolton’s tax and trusts practice, advising on a broad spectrum of matters ranging from wills and succession planning to tax efficient structures for non-UK domiciled individuals. Rosie’s background is in corporate tax and funds tax, and her clients include entrepreneurs, business owners, family-run companies and fund managers.

Kerry Garcia leads Stevens & Bolton’s employment, pensions and immigration team and advises on the full range of contentious and non-contentious employment matters, strategic HR issues, and business immigration law.