Policy changes announced in Hunt’s Spring Budget will make it more expensive for non-doms to live in London which could spell trouble for London’s prime property market.
Non-doms, or non-domiciles, are those who live in the UK and pay tax on UK earnings while maintaining a primary home overseas.
“The Government will abolish the current tax system for non-doms, get rid of the outdated concept of domicile and the remittance basis in the tax system, and replace it with a modern, simpler and fairer residency-based system,” Hunt said.
The new regime will come into effect in April next year. In the simplest terms, it would allow non-domiciled individuals to remain living in the UK for the ‘first four years’. After that time, they would be taxed as ordinary residents, Managing Director of Beauchamp Estates Jermey Gee explained. Non-doms currently have 15 years of tax-free foreign income.
London’s prime property sector has come to rely on international capital – a majority of London’s prime properties are bought by residents from international countries.
“The Chancellor’s announcement today regarding the abolishing of ‘non-domicile’ status is not a surprise. The value to Treasury of individuals claiming this tax position has long been debated, and if changes had not been made under the current Government, then it is highly likely they would have been under the next,” Gee said.
“The definition of precisely what constitutes the ‘first four years’ and ‘transition arrangements’, applicable to current non-doms also referred to, is yet to be confirmed,” he added.
To soften the blow, Hunt announced a new 12 per cent tax rate on money brought into the UK between 2025 and 2027 to keep non-doms in the country.
The Chancellor called it “a more generous regime than at present and one of the most attractive offers in Europe”. He has estimated it will raise £2.7bn.
Other European countries have launched similar regimes in an attempt to attract wealthy individuals. Italy, for example, exempts foreign income in exchange for €100,000 (£85,000) per year.
However, some fear the new changes will drive international property investors out of London and the UK.
The Office for Budget Responsibility (OBR) has estimated that 10 to 20 per cent of non-doms will leave the UK as a result of the change, and tax lawyers have been inundated with calls from non-doms looking to leave the UK, according to the FT.
“For individuals impacted by this change in ruling, there will doubtless be a revision to financial management structures, including for some business relocation, but the value of living in a city you love will ultimately be personal, as will the decision to remain.
London is a unique global city with a wealth of experiences, opportunities and excellent schools that combine to offer an exceptional lifestyle. Something that many will, I am sure, be happy to meet the revised cost of accessing and benefitting from,” Gee said.