Jeremy Hunt’s Non-Dom Italian Job?

So, the random musings in my social media posts over the weekend seem to have the strong, Gorgonzola-like whiff of the truth.


It looks as though Hunt will be blowing the bleedin doors off the current non-Dom regime and doing an Italian job in this afternoon’s 2024 Budget.


This is on the basis of heavy Treasury briefings in the last 24 hours or so.


As set out in my weekend post, the special flat tax regime in Italy provides that, if one pays a flat tax of €100k, then foreign income and gains (though entrepreneurs selling their own shares might be out of luck) are outside of Italian tax. Local income and gains remain taxable.


A feature of the Italian flat tax regime is there is no remittance basis. So what you earn abroad will remain exempt regardless of whether spent locally,


In the existing UK system, the remittance basis only afforded on the privilege of leaving foreign income and gains outside of the UK. Bring, use or otherwise enjoy them in the UK then you will pay tax.


Of course, as an economic policy, this is potty. “Ms Non Dom, we don’t want your money. Please don’t invest it in businesses or support local traders you little scallywag”


To an extent, this was recognised by George Osborne around a decade ago when the introduced the much under used Business Investment Relief. This was a relief that allowed funds to be remitted free of tax if for a qualifying commercial purpose.


So, maybe we will get a broad exemption?


But to who will the new regime apply?


Of course, the current UK regime is based on domicile. Only a non-Dom may use the remittance basis and there is a long stop date such that one loses the privilege after 15 years


The Italian system differs.


It is not based on domicile, but on residence. The Italian system is based on taking up (tax) residence in Italy and after 15 years can no longer use the regime.


So, will the UK send the concept of domicile for tax purposes LARGELY back to the dark ages…Well, back to port swilling, gout ridden times of William Pitt?


The signs seem to be there.


We might see less generous system of, say, 10 years because the Gov needs to be seen to be curtailing the regime to appeal to the public. But there are attractions to a similar 15 years (a materially shorter period would be a real rugpull for many who have come to the UK).


Further, I suspect the one-off fee will be at least £150k.


How might this apply to those returning to the UK?


Under the Italian regime, an Italian returning appears to be able to benefit though only if, during the ten years before their relocation, they did not qualify as tax residents of Italy for at least nine years.


Under the old Portuguese NHR regime, one could only avail themselves of the status where they hadn’t been a Portuguese tax resident in any of the five years prior to residence being established.


So, might there be a scope for the prodigal UK rich to return under this new UK plan?


When it comes to removing the tax link with domicile, I say LARGELY above because they’ll need to think about whether domicile is retained as the main connecting factor for IHT purposes. I suspect lots of expats might be watching eagerly.


These are probably relatively straightforward decisions – albeit not inconsequential ones when it comes to tax take.


But are there harder questions?


What, if any, transitional rules will be introduced?


What will happen to existing trusts? The last major changes that occurred in 2017 brought in the concept of Protected Trusts for those that might otherwise have been deleteriously impacted by the new deemed Dom provisions.


Will we have Protected Protected Trusts? Part of me wants this so we can have Unprotected Protected Trusts as well.


Or will a tougher line be taken?


What about income and gains which were part of the current regime. Sitting offshore in fiscal limbo?


How will they be treated under the new rules? A free for all… or a multi-track approach as a result of transitional rules.


History tells me the latter.


As we can, these changes could be a legislative nightmare.


Let’s hope in the mangled words of Charlie Cromer they’ve got a great…and well thought out…idea.


If you have any queries about this post, or UK tax matters in general, then please get in touch.