With David Lesperance
A contrarian expert on contingency plans for the wealthy delivers uncomfortable truths.
One particular group of “Golden Geese” has been feverishly scanning the British press over recent weeks. Thursday noon, they were able to breathe again. That was when Chancellor of the Exchequer Jeremy Hunt presented his first parliamentary budget statement, and over 72,000 extremely wealthy expatriate residents heard the words they had all been hoping for: “No change for Non-Doms!”
Cue sighs of relief throughout London (where 60-plus percent of them reside).
Why do I call them “Golden Geese”? Because these 72,000 individuals are the wealthy beneficiaries of an ancient British tax benefit scheme put in place when Europe was threatened by a greater dictator even than Vladimir Putin: one Napoleon Bonaparte.
In the 1790s, Britain’s Prime Minister William Pitt needed funds. He established Britain’s first income tax system in 1799. In the same year, he set up what the Inland Revenue still calls the Remittance Tax, a system designed to attract very rich expatriates to live and work in Britain.
The wealthy in the UK are basically divided into two separate groups: The Non-Doms and the UK Domiciliaries. The Non-Doms are those who qualify for the Remittance Tax Basis system. The Remittance Tax Basis is one reason the UK has enjoyed having more than its fair share of the world’s wealthiest people.
This tax regime only requires the Golden Geese Non-Doms to pay
- UK income tax on their UK-source or remitted foreign income; and
- UK estate tax on their UK in situ property.
Along with paying tax on this basis, the major economic contributions of Non-Doms to the UK have been consumer spending and investment. Accompanying the high levels of spending and investment are VAT, property, and other tax revenues, not to mention the vast array of service industries that cater to their wide range of needs.
How many Non-Doms benefit from this special tax status?
On August 4th, 2022, HM Revenue and Customs released its latest data showing the breakdown of the number of Non-Dom taxpayers resident in the UK.
For the financial year 2020/21, the number of UK-resident Non-Doms decreased from 76,500 to 68,300. This was largely due to Covid restrictions, which led to some 6,000 fewer new arrivals than the previous year. The sum of £3.4 billion was paid in income tax and other taxes in 2020/21, up from £3.1 billion in the year before.
Why were Non-Doms so worried about the budget?
Labour had pledged some years ago to kill the Remittance Basis, and Shadow Chancellor of the Exchequer Rachel Reeves repeated that pledge yesterday. However, current Chancellor Hunt told BBC Radio 4 yesterday that he did not think abolishing the special tax status “makes sense” and further commented that “[…]the Treasury did not tell me that it was going to help the economy to do this”. He said that while the move might be politically popular, it would be the wrong thing for jobs and prosperity.
The Guardian quoted him as saying that similar schemes were being set up across Ireland, France, Spain, and Portugal, that super-wealthy people would move to spend more of their money in those countries, and that he did not want to reduce the attractiveness of the UK.
Non-Doms are well aware that a large majority of British voters are aggrieved that Prime Minister Rishi Sunak’s wife, Akshata Murty, is a Non-Dom. This emerged in recent months, and it was trumpeted that she legally saved paying millions of pounds in tax that she would have paid if not for the Remittance tax.
Murty holds a 0.91% stake in Indian tech giant Infosys (founded by her father), which is worth an estimated £11.6 million yearly in dividends. Amid a furious public backlash, Murty did a U-turn and said she would henceforth pay regular UK tax on her overseas income.
However, strong feelings about the Remittance Tax issue are not new to the UK political scene.
Apparently, even Margaret Thatcher was caught up in the debate! Sunday Times columnist Dominic Lawson, son of Margaret Thatcher’s successful Chancellor Nigel Lawson, charmed readers of that paper on November 13th with his own Non-Dom tale from the 1980s:
In 1988, apparently, Chancellor Lawson and his No. 2, Norman Lamont, wanted to end the Remittance Tax. The announcement had been planned for that year’s budget. This budget was famous for its reduction of the top rate of tax from 60 percent to 40. What happened to the Non-Dom issue?
“Two words: Margaret Thatcher,” writes the younger Lawson.
Lamont told him recently: “When the Greek shipping merchants heard what we were considering, they wined and dined Thatcher, who was horrified to hear what her government was planning to do! Actually, I now think that Margaret had a point.”
What he meant was that if the ship-owners (the oligarchs of the 1980s) had upped sticks, it could have deprived the country of a lot of revenue.
So what now for the Remittance Tax basis? The next real test will be the general election, which must be held by 2024. And, given the strident views of the Labour leadership (by far the likely winners at this stage) backed up by Scotland’s SNP, they will win the relevant vote.
Predictions have often been made that the super-rich will leave Britain immediately. But such moves – when fixed assets, land, long-term investments, etc. have to be considered – are not so simple.
Advice to Non-Doms on Practical Actions and Solutions
Whether it's a new Labour government abolishment or the end of the 15-year limit on claiming Remittance Tax, if you believe that your family and your assets could be seriously affected by the loss of the Remittance arrangements, you should get to work now on preparing practical actions and solutions to avoid the tax hit of remaining in the UK with the benefit of the Remittance Tax.
Those Non-Doms who do not already have a proper backup plan in place should therefore engage a small team to map out a flexible, clear backup plan that will meet their personal and family needs.
UHNW and HNW expats living in the UK should include in this team their current UK tax advisor(s), who will estimate their future potential tax burden. They will also help to outline the steps that need to be taken in the UK to sever tax residency. The other half of the team would be responsible for identifying a potential new tax home that will meet all the family’s needs and preferences.
Once the backup plan is mapped out with its costs and timing and is compared to the future tax burden calculated, the client can make an informed decision to put the elements in place that will give them the ability - and peace of mind - to leave at short notice if/when their time as Non-Doms comes to an end.
More from David Lesperance's Reasonable Doubt column
- The Crypto Investor’s Five-Step Roadmap to a Low-Tax, High Quality Life in a New Jurisdiction
- Even for The Super-Rich, Citizenship by Descent is Extremely Useful: Lessons From Abramovich
- Pandora Papers: Lessons for Investment Migration Advisors and Clients
David Lesperance is a global leader of international tax and immigration advisors.
A published author in the field, his personal interest in these areas of law grew from his experience working as Canadian immigration and customs officer while studying law. Since being called to the bar in 1990, he has established his expertise with major law firms, his own law firm and as a private consultant. David has successfully advised scores of high and ultra high net-worth individuals and their families, many of whom continue to seek his counsel today. In addition he has provided pro bono advice to many governments on how to improve their Citizenship by Investment, Residence by Investment or Golden Visa type programs to better meet the needs of his global clients. David is supported by a team of professionals, some of whom have worked with him since the early 1990s.