By Thomas Ramagge, Deloitte Limited
On the 6th March, as part of the Spring 2024 Budget, the UK Chancellor of the Exchequer Jeremy Hunt announced that the UK will abolish the non-domicile (non-dom) system of taxation for individuals and replace it with a new residence-based test. The non-dom system allows individuals who are tax resident, but not domiciled, in the UK to elect to be subject to UK tax under the remittance basis of taxation, such that, their non-UK income and gains are only taxable in the UK to extent that they are remitted to the UK. There is an annual charge of up to £60,000, based on the number of years the individual has been resident in the UK, for electing into the remittance basis of taxation.
Temporary Repatriation Facility
From the 6th of April 2025, the remittance basis regime will be replaced with a new residence-based test. Individuals who have not been UK resident during the previous ten tax years will be eligible for the new regime for the first four tax years of UK tax residence. UK income and gains will be fully taxable in the UK but foreign income and gains received during tax years in which the new regime applies to the individual will not be taxable in the UK, even if remitted. Distributions from non-UK resident trust distributions will also not be taxable during this period. There will also be transitional rules for current UK resident non-UK domiciled individuals, including a two year “Temporary Repatriation Facility” from the 6th April 2025 to allow foreign income and gains received pre-6th April 2025 to which the remittance basis applies to be remitted to the UK at a flat 12% tax rate, however, this facility will not be available to pre-6th April 2025 foreign income and gains generated in a trust or trust structure.
HNWIs
With the announcement of these changes, some individuals may be looking at other possible options available to them. In this respect, Gibraltar offers its own unique special tax status for High Net Worth Individuals (HNWIs). Subject to certain conditions being met, individuals who are awarded Gibraltar’s Category 2 status are only taxed on the first £118,000 of assessable income and gains that accrue in, derive from or are remitted to Gibraltar, resulting in a maximum annual tax liability of £42,380 (expected, for tax year 2024/2025). There is a minimum annual Category 2 tax liability of £37,000, provided that assessable income and gains accrued in, derived from or remitted to Gibraltar does not exceed £104,205 (threshold expected for tax year 2024/2025), at which point any excess will be taxed at the marginal tax rate 39% until the assessable income maximum cap of £118,000 is met. As with the UK’s non-dom regime, individuals with Category 2 tax status are not subject to Gibraltar tax on their unremitted worldwide income or gains, unless they elect to be taxed on their worldwide assessable income gains, again subject to the maximum tax liability of £42,380.
Category 2 status
Before designating a HNWI with Category 2 status, the Gibraltar Finance Centre Director must first be satisfied that the individual is of good standing and repute and normally will require character references as part of the application process. The individual must also be of sound financial standing and will be required to support this, normally by way of bank statements or written confirmation from a professional such as the applicant’s accountant or lawyer. A successful application also requires the applicant to have available to himself approved residential accommodation in Gibraltar adequate for himself and his family, which must remain at their continuous disposal.
Furthermore, the individual must not have been resident in Gibraltar during the previous five tax years, or have been engaged in any trade, business, or employment in Gibraltar within the previous five tax years other than in respect of duties incidental to any trade, business or employment based outside of Gibraltar.
Whilst the application fee for Category 2 status amounts to a non-refundable payment of £1,100, a successful applicant must also make a bond payment equal to the maximum Category 2 tax liability (i.e., £42,380 in the financial year 2024/2025). This bond would amount to a one-off payment which is refundable by the Gibraltar Income Tax Office, net of any taxes due, in the year of assessment in which an individual relinquishes their Category 2 status.
It is also worth noting that Gibraltar offers a range of other tax incentives and benefits, including but not limited to a low corporate tax rate of 12.5%, no capital gains tax, inheritance tax, wealth tax or VAT, and limited taxation on investment income, making Gibraltar a very attractive potential alternative for entrepreneurs and retirees alike.
