Monday, December 23, 2024

Ultra-wealthy Britons face ‘double whammy’ tax raid

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Ultra-wealthy Britons face an effective tax raid of 100pc as Rachel Reeves presses ahead with plans to scrap the “non-dom” tax regime, experts have warned.

Tax advisers said high net worth individuals faced a “double whammy” on their earnings which will wipe out all income from overseas trusts.

One Telegraph reader said he was facing “hundreds of millions of pounds” in personal and corporate taxes because of the tax changes, which come into force from next April.

In his spring Budget, the former chancellor Jeremy Hunt said he would scrap the favourable tax regime for wealthy non-domiciled residents, a policy that Ms Reeves has committed to adopting.

Currently, earnings on overseas trusts are protected from the UK tax system unless non-doms bring the income into the UK.

From April, all earnings and capital gains in overseas trusts will become subject to UK tax rates regardless of whether they are brought into the country.

However, Mr Hunt also kept the 45pc tax on distributions in place. Andrew Robins, partner at accounting firm RSM, said this meant non-doms who use these trusts from April will suddenly get hit by overlapping tax charges.

He said: “They’ve got a double whammy. They’re being taxed on the new income as it arises, and they’re being taxed on the old income when it’s paid out. So it feels like they’re being taxed twice on the same distribution.”

From April, if a trust receives £10,000 in income this will incur a 45pc tax charge of £4,500.

To pay this to HMRC, the owner of the trust will have to withdraw £4,500. But this distribution can also incur its own 45pc tax charge – an additional £3,682 –  if the trust has received income in the past that has not yet been taxed. 

Altogether, this means that the owner of the trust will need to pay £8,182 in tax on £10,000, an effective tax rate of 82pc, Mr Robins said.

On top of this, the removal of the protections also means that it is the trust’s gross earnings that will be taxed, without first deducting costs.

This means the effective tax rate will easily be 100pc, Mr Robins said.

The tax change will affect up to a few thousand wealthy non-doms who use these trusts, he added.

The Telegraph reader, who wishes to remain anonymous, said he was planning to leave the UK and shift his business operations overseas as a result of the changes. 

The reader said: “Given that these assets have no connection to the UK and do not involved transferring assets abroad, applying the punitive regime is deeply unfair.

“Inevitably, many of our staff will follow me, gradually turning our London office into a satellite operation, importing services from our new de facto headquarters. I anticipate our exports from London will cease entirely by 2027, with the office serving solely the domestic market.

“For the record, I am not relocating to a tax haven, but to a normal EU capital where we can once again fully benefit from the single market and a simpler tax regime.”

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