There is well-known expression, "You can't go home again". This phrase that has been the basis for the title of a well-read 1940 novel, a 1979 movie, my favorite progressive rock song by the Moody Blues, and my son's favourite blue grass hip hop song by Gangstagrass. The expression warns "If you try to return to a place you remember from the past, it won't be the same as you remember it", says David Lesperance, founder and principal of international tax and immigration advisors Lesperance and Associates.
Non-Doms are well advised to take heed and give this warning a lot of consideration as they prepare to jump out of an increasingly hot tax frying pan of the UK. They have long concluded that "going home" was never a serious option.
If you are a UK Non-Dom, for the past 16 years you have been enjoying the Tax Remittance advantage of living in the UK. Unfortunately for all of you, the Remittance Tax advantage could disappear much sooner than most of you would have wanted….much sooner! And when it does go away, if not to your home country where will you go next?
In this article I hope will provide a few potential answers. I say "potential" because in order to get the right answer for you and your unique situation, you need to look at the lifestyle, residence, tax, military service, dual citizenship and family law issues associated with your specific family issues.
First, a bit of background.
Why do I think the Non-Dom tax regime is headed for the dustbin of history?
Simply stated, as a result of converging recent events, notably the invasion of Ukraine and the resulting sanctions leading to outraged media coverage of wealthy Russians in Londongrad, the regime has become widely unpopular in most circles. Of course not all Non-Doms are not Russian, but this lack of sympathy toward all Non-Doms is yet another unintended consequence of Mr Putin's war.
Add to this a floundering Prime Minister trying to retain power, a scandal involving the Non-Dom wife of the Chancellor of the Exchequer Rishi Sunak, and you have a perfect target for substantial…and highly-publicized and politicized…changes to the Tax Remittance scheme.
And there is no safe corner for this policy to hide. For the ruling and increasingly unpopular Tories, getting rid of this tax advantage for the ultra-wealthy could very well be a popular bone to throw to the dogs howling for their removal from power. And in the event the Tories do nothing about this regime before the election, Labor will surely make its demise a vote-getting plank in their campaign platform.
So one way or the other, the Non-Dom tax advantage could go the way of the dodo as soon as next fiscal year, and no later than just after the November 2024 general election if Labour wins the day.
This will not only impact the Non-Dom Russians whose stories of sheltered wealth and privilege fill the tabloids, but also the many Indian, Saudi, Chinese, European…and even American…nationals who have made the UK their de facto home.
So where does this diverse group of wealthy economic refugees go to next? For a start, most, will not want to go back home to their countries of origin. The reasons vary but include sovereign risk (I.e. fear of the government), high taxation, political and social instability and poorer lifestyle options. Avoiding these conditions are quite probably the reason they moved to the UK in the first place.
Country-specific concerns for Non-Doms
Russian Non-Doms
With respect to those HNW and UHNW Russians not already on any sanctions list and living outside of Russia…Non-Dom or not…most simply do not want to return to Russia as a result of the invasion of Russia. Unlike their friends and families back home, they have had access to more than one government-run news source, and are well aware that their lives would be much more controlled and monitored the moment they were to set foot back in Mother Russia under Putin. For those with wealth and international connections, any past and future expressions of opinion would be closely scrutinized and, if any do not pass muster, some form of punishment would certainly follow. The focus would not only be on them as individuals, but any outreach by families or their business associates could land them in a heap of trouble.
Since going home is not an option for most Russian UK Non-Doms, finding a safe haven is going to be a challenge since they now hold a pariah passport and there are more and more blanket bans being announced by some previously attractive residence and citizenship programs.
"…the UK, Malta, Bulgaria, Portugal, Greece, and the Czech Republic have all banned or suspended Russian nationals from receiving golden visas."
For these Russians without another citizenship, there are two issues. First, their Russian passport could be cancelled at any time by the Putin government. Don't forget, the passport they carry does not belong to them, it belongs to the state and can be cancelled at any time.
For this reason, securing a second citizenship/passport from one of the few countries which have not banned Russian applicants is a top priority. Second, they will want to organize one or more residencies that will enable them to flexibly maintain their personal, family and business lifestyles.
Recently the news has been filled with stories of wealthy Russians flooding into UAE
…but residency in the UAE is neither permanent nor guaranteed. Like most Gulf countries, the UAE is ruled by an autocratic monarch who can change government policy at will. And while in the UAE, these Russians will most certainly be under close scrutiny by the UAE's sophisticated security apparatus.
Currently all the signs point towards a pretty comfortable safe haven in Dubai, especially with the UAE not taking sides in the Russia-Ukraine conflict". However with the recent ascension of Sheikh Mohammed bin Zayed Al Nahyan to the presidency of this long-standing US-allied country, UAE policy towards Russia and Russians could change at any without warning thanks to international politics and diplomacy.
Saudi Non-Doms
Similarly many Saudi Non-Doms do not want to return to the Kingdom permanently. Ideally, they want to have their residence and assets outside of KSA to protect themselves from possible future personal attack from KSA's unpredictable leader, Mohammed bin Salman Al Saud) ("affectionately" known as MBS). They are concerned that in the future they may be viewed either as an opponent or as a target for a financial shakedown. Their concerns are well founded…just ask the hundreds of seemingly untouchable sheikhs who found themselves guests of MBS at the Riyadh Ritz Carlton.
A further concern is that MBS might take future geopolitical actions that turn Saudi into a pariah state. This would put them in the same unenviable position of their fellow Russian Non-Doms.
Also like the Russians they are worried that MBS could try and restrict their mobility and force them back to the Kingdom by cancelling their Saudi passport.
Fortunately, unlike Russian Non-Doms…Saudis currently have much more choice in the acquisition of second citizenships and residences. However, like their Russian counterparts, they need to look beyond the sales pitches for one jurisdiction or another and look at all the same issues when seeking advice on which combination of residences and citizenships will form their effective Backup Plan.
Chinese Non-Doms
The Chinese government has clearly demonstrated that they will not hesitant to take extreme actions to accomplish stated goals like "Common Prosperity"or "Zero Covid". Many speculate that there are unstated goals such as power consolidation and squashing dissent. Even the wealthiest and most famous business people such as Jack Ma are not immune.
"In the months following Beijing's surprise November 2020 decision to block Alibaba's Ant Group from listing on the Shanghai and Hong Kong stock exchanges, Chinese authorities have launched a widening series of crackdowns on technology giants, wealthy individuals, education services providers, celebrities, and even youth video gamers. Restraints on Beijing's interventions in society and the economy have become harder to identify."
Understandably, Chinese Non-Dom's are not rushing to book their return flights to mainland China, or even Hong Kong which itself is under ever-increasing scrutiny and control from the mother ship.
Not surprisingly, the same two issues arise for Chinese Non-Doms, the insecurity of their current passport and the ability to find a location that is not presently, or potentially in the future, that is not under the influence of China's economic and diplomatic bullying.
Indian Non-Doms
Many UK Non-Doms on the Rich List are Indian nationals who are not resident for tax purposes in India because of the tax burden and currency exchange controls…and an increasingly autocratic Prime Minister Modi. If the Remittance basis is killed in the UK, they will want to move to a tax-advantaged jurisdiction which has a similar lifestyle as the UK.
European Non-Doms
Many European countries have or are looking at implementing a range of Tax the Rich policies…indeed some of these policies actually drove wealthy Europeans to become non-Doms in the first place! Now that the UK may get rid of its Remittance basis for taxation, these holders of EU passports want to find another friendly European country to reside in. Fortunately for them, there are EU options such as Ireland, Portugal, Malta, Italy, Switzerland, Greece and Cyprus.
For those who have family and/or business interests in North America or Asia-Pacific, they may want to add a North American element such as Canada and a Pacific option such as NZ, Singapore or Australia.
And finally, North American Non-Doms
Very wealthy American, Canadians and Mexicans in general are worried about possible tax BIG increases by their respective governments as the drumbeats of Tax the Rich intensify. Fortunately, many Canadian, American and Mexican citizens may be able to claim to an EU country citizenship through their family lineage.
For US citizens, a lineage or naturalization citizenship will give them the option of renouncing their US citizenship and expatriation. If they do not have the requisite lineage then they can either purchase a Citizenship by Investment or acquire a residence which will lead to a new citizenship in due course.
Some General Advice for UK NON-DOMS who are thinking ahead
- There is NO "one-size fits all" solution. Every HNW individual and family is unique, and any proper Backup Plan should address their unique factors when it comes to citizenship, residence, taxation, business and asset protection.
- Don't jump at the first cheap & quick solution…please remember the maxim Quality, Price, Speed…choose any 2.
- A Backup Plan should include both alternative residence AND citizenship that will provide a tax advantaged new tax home.
- Monaco and Dubai are tax advantaged jurisdictions BUT do not lead to permanent residence or citizenship.
- For alternative citizenships consider physical presence requirements, tax residence, dual citizenship, public notification, speed of processing, which nationals are shunned:
a. Lineage: European heritage, Law of Return, Sephardic path in Portugal. And please consider the extensive documentary requirements and processing time;
b. Naturalisation: This can be as short as 15 months in Malta, 2 years in Singapore, 3 years in Canada, 4 years in Australia, 5 years in New Zealand and Portugal
c. Citizenship by Investment: Consider cost, timing, public notification
d. Always ask the person who has recommended a certain residence or citizenship by investment program if they will earn a commission. Best to ask this AFTER they give you a quote so that you will be able to determine if the person is acting in your best interest, or their own. - For alternative residences consider:
a. Do you need to reside somewhere for the medium or long-term for family reasons (i.e. schooling) or for business reasons?
b. Make sure you understand if the vis is annual, time-restricted, open or permanent
c. Is there a tax treaty with the UK?
d. Can the residence lead to citizenship, and if so, what are the conditions?
Often no single citizenship or residence meets all the needs of an effective Backup Plan. Usually a combination of several citizenship and residence status will satisfy the family's needs. Therefore before leaping ahead with the acquisition of a second citizenship or residence, UHNW Non-Doms need to make sure that they have first mapped out an integrated strategy which includes an asset by asset Fire Escape Plan from the UK for a possible future outside Great Britain.
By David Lesperance, founder and principal of international tax and immigration advisors Lesperance and Associates.
