Thank you Mishcon de Reya LLP for a great summary of the budget 2024
Non-doms- From nostalgia to planning _________________________ And so it goes. A system introduced in 1799 and which many countries copied. The day after the storm, it’s time to reflect on next steps. 1️⃣ New Arrivers: The UK remains an interesting option to make a new home. Other countries may offer a longer period of tax break (4 years the UK, 15 years Italy, potentially a lifetime Switzerland). But for some people there are benefits as it would appear from yesterday’s announcements that arrivers won’t be asked to fork out anything to benefit from their stay in the UK. To some, this might be preferable than, say, the Italian system (€100k) or the Swiss one (CHF 400k as minimum tax base for a forfait). So it will be horses for courses and we will work together with clients and colleagues in other countries to provide the best outcome to fit a client’s preferences, which may go beyond tax. 2️⃣ Existing non-doms. Let’s not sugar coat it. Existing residents are in for some hefty withdrawal symptoms, as the remittance basis system would be phased out over the next 2 years’ period. But here, too, there is a silver lining, as the concept of ‘remittance’ and ‘non-UK source’ was very complex and so there may be some interesting opportunities to ‘onshore’ funds that the family needs in the UK. 3️⃣ Trusts. Under yesterday’s announcement, trusts will still offer protection from UK Inheritance tax. This alone is a big point, as the UK (like the US and France) levies inheritance tax at 40%, putting off European families who are used to 0% (eg Switzerland, the Middle East, HK, SG) or 4% (eg Italy). Going forward, families may establish a foothold in the UK without the ghost of IHT. 3️⃣ Settlors. Going forward, settlors who may benefit under a trust will be attributed the trust’s income and gains. A huge departure from the past, but one client of mine was quick to comment that he will now establish a UK resident trust which will protect him from IHT and give his family a sophisticated governance vehicle to manage his family’s estate planning without having to rely on offshore trustees. Here, the non-tax benefits of a ‘domestic’ trusts may outweigh the loss of protection when it comes to offshore income and gains. Also, settlors who do not want or need to benefit from a trust will not be taxed on a look-through basis, so setting up a trust for the family may still be the right thing to do while being UK resident. In addition, consideration should be given to the ‘motive defence’ rules, which have been around since the 1930s. 3️⃣ Beneficiaries. In the UK (like the US), beneficiaries are only taxed as and when they receive distributions. This won’t change. Therefore, international families will still be able to send their children to the UK without jeopardising existing family trust structures, which is not the case for some of the UK’s neighbours (eg France). Where some see challenges, other see opportunities. Mishcon Impossible.
