Our MENA team, based in Dubai, combines international Private Wealth expertise with a committed local approach.
Now the dust has (almost) settled, we wanted to summarise our thoughts on how the UK budget 2024 non-dom tax changes could impact clients in the Middle East:
- Abolition of the remittance basis – UK resident non-doms currently benefit from the attractive remittance basis. This will be replaced with a much shorter four-year UK residence period in which new arrivals to the UK will have a 100% UK tax relief on foreign income and gains. In our view, clients will likely find a four-year period insufficient to move and establish life in the UK. Clients will have to consider whether they are attracted to move to the UK. This is in the context of increased momentum with HNW and UHNW clients from Europe and elsewhere moving to establish their longterm residence in Dubai. One interesting potential implication for clients from the Middle East is whether it is still attractive for children (and their parents) to relocate to the UK for British education (in particular for A-levels, IB or University education). Moving to the UK for education could now come with much greater UK tax implications.
- Trust planning opportunities – one thing we expect the budget will do is create more trusts. There were some very significant changes to how trusts will be taxed. The primary takeaway for clients is that once an individual who set up a non-UK trust no longer qualifies for the four-year regime, protected settlement status will be lost and they will pay UK tax on all income and gains arising in the trust. However, one trust planning point seems to remain available. For existing non-doms (or those planning to come to the UK before April 2025) non-UK assets settled into a trust prior to April 2025 will remain outside the scope of UK inheritance tax (which could be valuable given the proposed UK inheritance tax rule changes - see next point. Although, there is a question on how long such protections for trusts will remain available as the government has said that it will consult on this in due course.
- Wide scope of inheritance tax – the UAE and Saudi Arabia, for example, do not impose estate or gift taxes. Middle Eastern clients will have to think carefully about living in the UK on a long-term basis as, subject to consultation, the government's intention is for individuals who are resident in the UK for 10-years (also a shorter period than under the current rules) to be liable for UK inheritance tax on worldwide assets. It will take 10-years of non-residence (this time a longer period) for that status to revert. 10 years is a long amount of time to not live in the UK but continue to have such a significant tax exposure.
- UK residential property – we have found that Middle Eastern clients remain keen on UK residential property. Some good news for clients is that, apart from some changes to stamp duty land tax relief on the acquisition of multiple dwellings, there have been no significant changes announced on the taxation of UK residential property (for clients purchasing residential property for investment or their own short-term accommodation).
There is no doubt that the non-dom tax changes could be extremely significant. Clients in the MENA region, and elsewhere, will need to reflect on their UK residence intentions and take professional advice to plan in response to these tax changes. However, we expect that these changes are likely to evolve further, in particular, as the next general election in the UK will be held by no later than 28 January 2025, before most of these rules come into effect in April 2025.
If we can support with answering your questions on the non-dom tax changes or on other Private Wealth matters, please get in touch with Ronald Graham or Josh Eaton.
Our analysis follows Jeremy Hunt's Spring Budget announcement as well as HM Treasury's technical note, but we await draft legislation to fully understand the proposals and some of the measures are subject to consultation.
