Outro 0:01
Welcome to the London property podcast, your go to source for navigating the complex and ever changing London real estate market. Our digital marketplace provides informative and educational content from industry leaders. Through podcasts and videos. We cover various aspects of the real estate experience, including buying and selling finance, law, tax construction, design, and more. Join us as we delve into the latest trends and developments in the market and gain valuable insights from our panel of experts.
Farnaz Fazaipour 0:33
Hello, and welcome to London property, the home of super prime. I'm your host Farnaz Fazaipour. And today we're delighted to invite Alan Kennedy back to the show Welcome back when he promises. So Alan, just for our listeners who may not have listened to some of your previous interviews with us. Can you just give us a quick brief history of your area of expertise and how we got to be here today?
Outro 0:55
Yep,
Speaker 1 0:56
I run a business called Trident tax which is based in Bedford Square in central London. And also in Manchester and Birmingham. We specialise in high net worth investors and individuals who typically have interests in the UK. But also we have some interests on a worldwide basis as well. Most of my team is drawn from KPMG and PricewaterhouseCoopers. So we're all very experienced tax advisers.
Farnaz Fazaipour 1:25
Fantastic, and you specialise in tax. And I always say if you've got a tax problem, go to a tax accountant not a tax lawyer, they do words, tax accountants do numbers. But I guess a combination of the two
Speaker 1 1:36
is needed. We do like to try and combine the two. So
Farnaz Fazaipour 1:39
just the topic that we're discussing today is about the non DOM status being cancelled as it were. Can you just tell us a little bit of the history of the non DOM and how it all came to be so that, you know, we've had an understanding of its origins?
Speaker 1 1:56
Yeah, well, domicile is a concept that was you know, predates our income tax system by hundreds of years. So it's a common law concept, but it has been adopted into our tax legislation. So that we have, you know, two different bases for taxation in the UK, we have residents, and then we have domicile, so you can be resident in the UK, and be taxed on your income and gains that arise within the UK, but you can also be non UK domiciled, and generally not pay tax on the overseas income and gains that you have.
Farnaz Fazaipour 2:36
Okay, and the question I have, the next question I have is currently, what would you say are the numbers of the non DOM? So what is the size and the impact of this change? Yeah,
Speaker 1 2:47
it's quite significant. So I actually gave a talk on this very recently did a little bit of research and the latest numbers from two or three years ago are that they were just under 70,000. Non Dom's in the UK. Most of those had been in the UK fairly short period of time, I think. And only just over 2000 of them were paying a fee to be a non dog, which means that they've been in the UK for more than seven years.
Farnaz Fazaipour 3:19
Right? So you have to be after seven years, you start what was it 35,000 A year or something that you've
Speaker 1 3:25
started 30,000 a year, you can decide every year whether it's cost effective to pay not to be taxed on your money outside the UK. And after 12 years, it goes up to 60,000 pints. Okay,
Farnaz Fazaipour 3:37
and are there any specific countries or regions that people are coming from, and then using up this non DOM status up to now? I
Speaker 1 3:48
think traditionally, we've had lots of people from all over Europe, we've also had lots of people from the Middle East. And maybe a few from the US, but for the US people, they're taxed on a worldwide basis already by the US. So it was never a particularly tax efficient thing for them to do. Okay.
Farnaz Fazaipour 4:11
And so now to the to the point of the hand here, the chancellor is proposing on phasing it out. So what do we know so far?
Speaker 1 4:20
Well, we know a little, but we do have the main headlines. So I guess the first thing to say is that for a long time, people have been worrying what the Labour Party we're going to do about non DOM status because the I've talked for a long time about abolishing this and back in January. They were floating the idea of a short period for being a non DOM maybe four or five years. And then what Jeremy Hunt has done is he's tried to steal their thunder. He appears to have jumped on the same bandwagon and pretty much taken the ideas that the Labour Party were talking about and used the was perhaps in an effort to try and help him win the next election. And
Farnaz Fazaipour 5:05
and and the phasing out is is what is it over the coming two days a little bit?
Speaker 1 5:11
Yeah, the there's a little bit of phasing out. But the concept of non DOM will actually end in just over a year on the sixth of April 25. So we wouldn't really have anyone coming to the UK as a non DOM after that date. What we will have is a new regime. And I don't think they have a name for it, but they call it a residency based regime. So it's like several other European jurisdictions, they allow people who have not either not lived in the country before or have not lived in the country for 10 years to come to the UK, and for four years, they will not be taxed on their overseas income and gains. But there are two big differences with this new system. Number one, you don't have to pay a fee. And number two, you don't you don't have to be non UK domiciled it would appear that anyone who was born in the UK but has left for 10 years or more could come back and do this. Also the money that you're not taxed on outside the UK in the first four years, you can actually bring all of that money to the UK. Whereas previously, you would be taxed when you brought the the income or the gains to the UK under the new system, you will not in the first four years. So it's a very, very different system that we're going to have. So
Farnaz Fazaipour 6:35
not taxed the tool or there was a number of 12% being bandied around
Speaker 1 6:40
No, the 12% is called the temporary repatriation facility. So the 12% tax rate is a bit of an amnesty to encourage people who already non Dom's and using what we call the remittance basis of taxation. So previously, or currently, if they bring those income or gains to the UK, they would pay the full rate of tax. But they've got a two year period from six April 25, when you'll no longer be able to use the remittance basis. So for that period, until the fifth of April 27. As a non Dom, you can bring your three April 25, April, income and gains to the UK. And instead of paying up to 45% on income and maybe 20% on gains, you will only pay a flat rate of 12%. So
Farnaz Fazaipour 7:33
does that mean that from from next April, you won't have any new non dorms, but are the existing non dorms going to be able to live out the remainder of the 15 years that they they've entered into? No,
Speaker 1 7:48
I'm afraid that they're not. So the only concession to the existing Dum Dums who'd been or who will have been here for four years or more at that point is this ability to bring money in for two years at 12%. But then also in the first year, we have a reduced rate. So the income that they have outside the UK, if they're still in the UK, of course, at this point, they will only be taxed on half of their income in year one of the new regime, but after that, it will be the full amount of income that will be taxed. And also from the first year the full amount of capital gains will be taxed. There's no concession on capital gains.
Farnaz Fazaipour 8:31
So I'm sure you're going to be extremely busy in the coming months. But have you seen any light at the end of the tunnel about what things the non dorms are or should be considering now?
Speaker 1 8:46
Yes, I mean, there are certain types of insurance wrappers which can hold investment portfolios, they have a very good tax treatment, and that tax treatment does not depend on domicile status at all. So that's something that's been around for decades, it's available to, you know, UK domicile people and always has been, there's no sense that that's going to change in the legislation. So, there are restrictions on the type of investments that can be made, how they can be managed, and the amount of money you can take back at any one time. But that is a solution that a lot of people I think will adopt that we might see. You know the other solution, if you can call it a solution is to leave the country. So I think realistically, we will see people who want to spend less time in the UK and remain non UK residents so they will just not be affected by these rules.
Farnaz Fazaipour 9:53
Obviously the rest of Europe has been making changes to attract some of the super wealthy global All residents as it were, and I know that I noticed personally that you know, some of the wealthiest people going back a few years were starting to move to Italy, for example, where they just pay the 100,000 pounds. But they have to commit for 15 years to that. Is that right?
Speaker 1 10:17
No, I don't think they have to commit for that long. The Italian regime is 100,000 Euro. And I think it's 25,000 euro for your your partner. If you have a partner. From memory, I think it's eight or 10 years, you can do this for in Italy. So there is a fee. But you can also bring the overseas money to the UK, or sorry, to Italy without being taxed on it. But there is one important exception for capital gains. So if you have a private company, and I think it's if you own 20% or more of that, the Italian regime may not allow you to have the capital gain free of Italian tax. So that's a very important one to be careful of. And obviously for property, there are some significant changes that could affect the inheritance tax position as well. So we've known since 2017, that UK residential property cannot really be protected from inheritance tax by using a non UK company for example. Now, it's still the case that non residential property so commercial property or land in the UK, can be insulated by a non DOM from UK inheritance tax. But the proposals on inheritance tax are that when a person who is non Dom has been UK resident for 10 years, they will be taxable on their worldwide assets. So holding UK commercial property through a non UK company will not be effective, it would seem after that person has been in the UK for 10 years. And then they've also announced that these changes on inheritance tax may also be applied to non UK trusts. So we may have the same problem where the set lor, the person who basically put the assets into a trust has been in the UK for 10 years, the trust may have some UK commercial property through an overseas company. But that property after 10 years might become exposed to UK inheritance tax. So all these things are subject to consultation. And we'll know more in the next few months about those. So
Farnaz Fazaipour 12:38
if people really fight to stay, then we know that we've really, you know, getting people to pay for the manner of speaking in the UK when you're introducing all these things. What will how the tax experts actually reacting to this news, your colleagues,
Speaker 1 12:54
I think no one was surprised about the fact that the non DOM period was severely reduced. Maybe on the plus side, I didn't expect this mini amnesty on bringing money in at 12%. So that's, you know, an encouragement for people to try and invest into the UK. And, you know, it may create a mini property boom, who knows, for that two year period, it will encourage investment. So that's a good thing. It was also a surprise that people who are from the UK originally, if they've been away for 10 years, take advantage of this new system for four years. So that may encourage some people to come back to the UK. So that's a good thing. What is obviously less good, are the surprising changes on inheritance tax that have been talked about. So you could come to the UK be liable to UK inheritance tax after you've been here for 10 years on a worldwide basis? And then the proposal is that after you've left you continue to be exposed to UK inheritance tax for another 10 years. That seems to make things incredibly unattractive to me.
Farnaz Fazaipour 14:13
Oh, wow. That's not a good one. So we touched on Italy a little bit. But are there any other European countries that you think are going to win some of our non Dom's over?
Speaker 1 14:26
Well, it will be interesting to see now if other countries move to new regimes in direct response to the UK, but certainly places like Malta have, you know, I've had golden visa golden passport schemes for a while. Portugal had its non habitual resident regime, which it just got rid of recently, but I'm sure we will see some reaction across Europe to try and attract these wealthy people in lots of countries do seem to think it's a good idea to have these wealth. individuals politically at the moment, I think the UK just decided it's not the right look for the UK. But inevitably, I think we're going to lose some business because of it.
Farnaz Fazaipour 15:12
I mean, I may be wrong, I may be right. But one thing that I did notice, I think that was the result of the the non DOM status that we had here is that our property prices over the past 1015 years were inflated really unnaturally. It was more reliant on, you know, well, if I'm not paying any tax on my income that I'm making all over the world, I'm not that bothered if I pay 567 1000 pounds per square foot for something in the UK. So I think the effects of that for the locals has been negative, because it makes it harder for the locals to get on the property ladder. So it will cause it a correction, I think when it comes to property, but I think it would be nice to have some way of encouraging people to come to the UK to invest in business to invest in employment, and hopefully, you know, there'll be this will be the stick and maybe there'll be a carrot on its way that that will encourage people to come and set up companies here.
Speaker 1 16:07
Yeah, possibly. So we don't have an investor visa any longer, we do have an innovator visa. So really, if you're moving to the UK, you don't have a prior connection prior right to be here, you really do need to be starting a business, that that is the requirement. The other thing that maybe didn't get so much attention in the budget, is that they've decided to abolish multiple dwellings relief for stamp duty land tax. So that is also a blue. If you're buying if you're an overseas investor, you're buying multiple residential units, you can get them at their non residential rate and pay a maximum of 5%. And that will go I think its first of June, but that's going. So that is probably not what the property market needed to hear.
Farnaz Fazaipour 16:59
Yes, but then again, with my good hat on when we could think that, you know, if you get rid of all the rental investors, which is what seems to be happening, nobody will stay in the rental market, then maybe, you know, people will start getting on the property ladder, my slight when we were in our 20s. And it was so much easier to get on the property ladder. Well, hopefully
Speaker 1 17:17
that the combination of maybe some mortgage rate reductions to come later this year should help the domestic market. Yeah, I agree. It might become a bit sticky at the very high end. Because they might struggle to find buyers if the overseas buyers are not here. But maybe it takes the property market in a new direction. And maybe it's more vibrant from a local perspective, as you say,
Farnaz Fazaipour 17:43
yeah, no, no, you know, markets always find a way. Well, it's really good to have you on the show. And just before we say goodbye for the listeners that are interested in getting some assistance. So what I'm reading into our conversation is that you will be able to help people with their non DOM status, but you could also guide them about other options and things to do in other jurisdictions to a degree.
Speaker 1 18:10
Yeah, to a degree. I mean, certainly you said earlier, there's there is going to be lots of restructuring, lots of movement. There are already a few things that people can do to soften the blow. As a non Dom, I mentioned the insurance wrapper, there's also the use of companies that can be done. People may want to take advantage of their non DOM status before these new rules here, take any money that they need to take out at that point. And then have a very low tax rate when they bring it into the UK in the first two years. So there are still lots of opportunities. And we do have almost a year well, just over a year, in fact, to plan for this. But the legislation will be passed in the next few months, sort of probably June, July, we will know exactly what all of this will look like.
Farnaz Fazaipour 19:04
Brilliant. Well thank you very much for your time, and it's such short notice hot off the press. I've already got people who want me to send them a copy of this interview. So I will do that. And we'll be in touch and hopefully you'll be able to help some of our listeners restructure and stay ahead. Let's hope so. If you have any questions about non DOM status, and you'd like to take some more advice, please do get in touch you can email us at ask at London property.co.uk.
Outro 19:32
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