Expert: Roopalee Dave, EY Facilitator: Richard Arnott, EY
Headlines:
- From April 2025, the UK will move from a domicile-based tax system to a residency-based one, significantly impacting high net worth individuals (HNWIs) and wealth structuring strategies
- The new regime removes protections for offshore trusts, increasing tax transparency
- A temporary tax benefit allows offshore income and gains to be repatriated at a reduced tax rate, raising questions on its long-term efficacy
- The changes could reduce the UK’s attractiveness for wealthy individuals, prompting comparisons with tax regimes in other countries
- There's concern that wealthy individuals may leave the UK, potentially harming investments and the economy
- Despite the reforms, potential structuring opportunities exist for wealth management, including offshore bonds and using companies within trust structures
Discussion points:
Introduction and overview of non-dom regime changes
Sarting in April 2025, the domicile concept will be replaced by a residence-based system, where individuals who have been non-residents for 10 of the last 20 years can shelter foreign income and capital gains from UK taxation for their first four years of residency.
Impact on offshore trusts and repatriation facility
The removal of offshore trust protections will make them fully transparent for income and capital gains tax purposes, significantly affecting wealth structuring for HNWIs.
The new temporary facility enables individuals to repatriate offshore income and gains to the UK at a reduced tax rate (12% for two years, then 15% for one year).
Structuring opportunities and global competitiveness
Despite the changes, there are still opportunities for using underlying companies within trust structures or exploring offshore bonds and protected cell companies.
The discussion highlighted global competition, comparing the UK’s new regime to tax systems in countries like Italy (flat tax regime) and Switzerland (forfait regime).
The UK's changes are seen as potentially less attractive for wealthy individuals and businesses, raising concerns about its ability to compete globally for top talent and capital.
Human capital flight and economic impact
Delegates raised concerns about wealthy individuals and entrepreneurs leaving the UK, which could lead to a reduction in future investments and a possible negative economic impact.
It was noted some clients are already relocating or considering doing so due to the changes.
Future outlook and uncertainties
Delegates speculated that the UK could implement additional changes, including wealth or exit taxes, in the future. The potential for these shifts creates uncertainty, which might impact long-term planning for HNWIs.
Key takeaways:
- The removal of the domicile concept and replacement with a residency-based regime will have major tax implications for HNWIs, particularly in wealth structuring
- The lack of protections for offshore trusts will require a re-evaluation of wealth management strategies
- The temporary tax benefit for repatriating offshore income and gains could provide short-term relief but may not be a permanent solution
- The changes to the tax regime could make the UK less attractive compared to countries like Switzerland and Italy, potentially driving wealthy individuals away
- The potential for additional changes to the tax regime, including wealth or exit taxes, could make long-term planning for HNWIs more challenging
