With the next UK general election scheduled to be held no later than 28th January 2025 – and some speculation suggesting it could occur as soon as the spring – much focus has turned to the implications the identity of the new Government could have for many people’s wealth preservation in Gibraltar.

Recent polling has suggested at least the strong possibility of a Labour Government, whenever the election finally happens. As this article was being written, a “poll of polls” by Electoral Calculus indicated that if a general election took place immediately, Labour could expect to command 45.3% of the vote and 441 seats, leaving the ruling Conservatives with just 135 seats from 26.6% of the vote.

If, then, a Labour Government does come to pass, many resident non-domiciled individuals (RNDs) may be concerned about potential changes to the tax regime that could affect their wealth structuring in Gibraltar.

Below, our MD Oliver Andlaw considers what Labour has pledged, the significant implications this could have for RND individuals who have substantial assets and income outside the UK, and possible planning opportunities using Gibraltar Protected Trusts.

‍What is UK domicile?

Domicile is a general law concept, referring to the country or legal system where a given individual considers they have their roots, or that they consider to be their permanent home.

Domicile is a different concept to residence, nationality, or citizenship. It is acquired at birth and is very adhesive, with a given individual also only able to have one domicile at a time.

Although it is possible for an individual to acquire a new domicile during their lifetime, it is difficult to displace the birth domicile, otherwise known as the ‘domicile of origin’

If, then, a given individual wishes to do so, they would need to show that they have permanently severed links with the country of their domicile of origin, alongside establishing a permanent and irrevocable intention to remain in their new home country.

‍‍What is the present framework for RND?

As matters stand, a RND is able to access a favourable basis of taxation that UK resident and domiciled individuals are not able to avail themselves of. This favourable basis of taxation is known as the ‘Remittance Basis’, which Labour has said it will abolish.

RNDs who opt to use the Remittance Basis are subject to UK tax on their UK income and gains, in the year they arise. Such individuals are only taxed in the UK on their overseas income or gains in the event of the overseas income or gains being remitted to the UK.

The remittance-based charge currently works as follows:

  • RNDs are not obliged to pay any charge in order to access the Remittance Basis for the first seven years of their UK residence.  
  • However, once a RND has been resident for more than seven out of the previous nine tax years, they are only able to continue accessing the Remittance Basis if they pay a Remittance Basis Charge (RBC) of £30,000 per tax year.
  • When a RND reaches the point of having been in the UK for more than 12 out of the previous 14 tax years, the RBC increases to £60,000 per tax year.
  • Once the RND individual has been resident for more than 15 out of 20 tax years, they are no longer able to access the Remittance Basis, instead becoming ‘deemed domiciled’ for UK tax purposes. From this stage, they are taxed on their UK and overseas income and gains as they arise. ‍

‍What has Labour said it will change about UK domicile?

The Labour Party has confirmed that it intends to scrap the current system. Instead, it is proposing “a modern scheme for people who are genuinely living in the UK for short periods to allow us to continue to attract top international talent”.

However, there is much we do not yet know about what a Labour Government would change. We do not currently know, for example, whether Labour would make changes to the broader concept of domicile, or whether it would simply introduce limitations to the period during which RNDs can take advantage of a favourable tax environment (in whatever system replaces the Remittance Basis).

If you are an RND individual, what actions should you take right now?

With the Fixed-term Parliaments Act 2011 having been repealed in 2022 and replaced with the Dissolution and Calling of Parliament Act 2022, the monarch once again now has the power to dissolve Parliament, at the request of the Prime Minister of the day.

This effectively means the Government of the day can decide when to “call” a general election, and no date for this has yet been confirmed. However, with the current Parliament set to automatically dissolve on Tuesday 17th December 2024, unless it has been dissolved sooner by the King, the next general election is set to happen no later than 28thJanuary 2025.

In the meantime, there continues to be much speculation as to when Prime Minister Rishi Sunak might ultimately call that election. Historically, UK general elections have usually been held in May or June, which is why many observers anticipate that a poll will happen next summer.

It is, of course, difficult to plan in an uncertain environment when the outcome of the election remains to be seen and detailed proposals are not yet available. However, if you are a non-dom who has presently been in the UK for less than 15 years, it might be a sensible course of action for you to review your current arrangements.

When you carry out such a review, you may wish to pay particular attention to your offshore wealth structuring, so that you can prepare yourself to take further steps when it is appropriate for you to do so.

If you do undertake such a review of your current arrangements and consider changes, one planning opportunity that you may wish to discuss with your UK advisers is the use of a Protected Trust.

What is a Protected Trust?

A new category of “Protected Trusts” was introduced by the Finance (No.2) Act 2017. A Protected Trust is a discretionary irrevocable trust set up by an RND before they become deemed domiciled in the UK.

A Protected Trust is required to fulfil certain conditions. However, one of the major benefits of this status is that it preserves the remittance basis of taxation for the foreign income and gains that arise within the trust, even once the settlor becomes deemed domiciled in the UK.

This allows for the settlor and the beneficiaries of the trust to access the trust income and gains without them needing to pay UK tax, as long as they do not remit them to the UK.

If this is an option that appeals to you, it is important to bear in mind that great care must be taken in the administration of a Protected Trust, as there are various ways in which it could potentially lose its status. Choosing competent Trustees is therefore very important

Furthermore, as of the date of writing, there has been no mention of the amendment to the Protected Trust regime although this is, of course subject to change.

‍‍Further contact

If you would like to discuss further, please contact Oliver Andlaw in the first instance to see how we can help.

The above is generic in nature, does not constitute advice and as such should not be relied upon to make any decisions whatsoever. Before making decisions, full and specific advice should be sought from competent UK tax counsel. We have a network of trusted advisers and would be delighted to assist with your tax planning in Gibraltar.