Insights and Solutions for Affected Holders: Cyprus and Dubai

In her initial Budget on 30 October 2024, UK Chancellor Rachel Reeves confirmed a monumental shift in the country’s tax landscape: the abolition of the long-standing non-domiciled (non-dom) tax regime. Set to take effect on 6 April 2025, this reform marks a turning point for non-doms, introducing far-reaching changes to the taxation of foreign income, inheritance, trusts, and property.

For high-net-worth individuals (HNWIs) and global investors, these changes necessitate immediate action to mitigate their potential impact.

At AGPLAW, we understand the complexity of these reforms and the urgent need for strategic planning. In this article, we unpack the key changes, analyze their implications, and propose actionable solutions for individuals and families with connections to Cyprus, Dubai and elsewhere.

Key Changes to the Non-Dom Regime

The abolition of the non-dom regime eliminates the remittance basis of taxation, under which UK tax is levied only on foreign income and gains brought into the UK. Instead, all foreign income and gains will now be taxed in the UK, regardless of remittance. However, the Budget introduces transitional provisions for “Qualifying New Residents,” offering 100% relief on foreign income and gains (FIG) for the first four years of residence, subject to certain conditions.

Additionally, the UK’s inheritance tax (IHT) system will shift to a residence-based model, replacing domicile as the key criterion. This change significantly lowers the threshold for worldwide IHT exposure, with individuals deemed as long-term residents (LTR) after 10 years of UK residence, down from the current 15-year rule. Trusts settled by non-doms will also lose their current protections unless the settlor qualifies for the FIG regime, while non-UK assets in trusts will face IHT charges based on the settlor’s residence status.

Further, increases in capital gains tax (CGT) rates and changes to property taxes such as Stamp Duty Land Tax (SDLT) will amplify the financial burden on non-doms, particularly those with significant overseas assets or UK property holdings.

Implications for Affected Individuals

The abolition of the non-dom regime introduces a higher tax liability for many, with wide-ranging implications for income, estate planning, and trust structures. Some of the most critical challenges include:

• Worldwide Tax Exposure: Non-doms will now face UK tax on all global income and gains, regardless of remittance status.
• Trust Structures: Trust protections will erode, making offshore trusts less attractive and exposing beneficiaries to higher tax rates.
• IHT Scope Expansion: The new residence-based IHT rules will accelerate worldwide exposure for long-term UK residents.
• Increased CGT: Rising rates and reduced relief thresholds will impact asset disposal strategies, particularly for business owners and investors.
• Property Taxes: Higher SDLT and restrictions on property acquisitions by companies will make UK real estate a less attractive investment option.

Cyprus as a Strategic EU – Mediterranean Alternative

Cyprus offers a compelling alternative for individuals seeking to relocate or restructure their tax affairs in response to these changes. As a non-dom-friendly jurisdiction, Cyprus provides a range of benefits for those transferring their tax residency or restructuring their wealth management strategies.

1. Non-Dom Tax Benefits: Cyprus non-doms enjoy significant exemptions from taxes on dividends, interest, and gains from the disposal of securities, making it a favorable destination for investment income.
2. Favorable Trust Regime: The Cyprus International Trust framework provides robust asset protection and tax efficiencies, particularly for HNWIs seeking to shield their wealth from exposure under the new UK rules.
3. Residency Solutions: Cyprus offers attractive residency schemes, enabling smooth relocation for individuals and families.

Dubai: A Zero-Tax Jurisdiction

For those seeking a zero-tax jurisdiction, Dubai presents an unmatched opportunity. The UAE does not impose income tax, CGT, or IHT, making it a prime choice for wealth preservation and tax optimization.

Key advantages include:

• Residency Options: Dubai offers straightforward residency solutions, including investor visas and the popular Golden Visa.
• Trust and Foundation Structures: Dubai’s modern trust laws allow for the creation of private foundations and trusts, offering confidentiality and strong asset protection.
• Strategic Location: As a global financial hub, Dubai provides connectivity and access to diverse markets, making it ideal for business and personal growth.

Proposed Solutions for Affected Individuals

AGPLAW is committed to supporting clients through this transition with tailored solutions designed to mitigate the impact of the UK tax reforms. Our recommendations include:

• Reassessing Tax Residency: Individuals currently benefiting from the UK non-dom regime should evaluate the viability of relocating to Cyprus or Dubai to reduce their tax exposure.
• Restructuring Trusts and Assets: Offshore trusts and asset-holding structures should be reviewed to ensure compliance with the new rules while maximizing tax efficiency.
• Leveraging Transitional Provisions: Former UK remittance basis users should explore the Temporary Repatriation Facility (TRF) to remit foreign income and gains at reduced tax rates.
• Adopting New Investment Strategies: Rising UK CGT rates necessitate a reassessment of investment portfolios, with a focus on tax-efficient jurisdictions like Cyprus and Dubai.

Conclusion

The abolition of the UK non-dom regime is a significant development, requiring proactive measures to safeguard wealth and optimize tax strategies. With deep expertise in cross-border tax and estate planning, at AGPLAW we offer solutions for individuals and families looking through and evaluating these changes.

Whether you are considering relocating to Cyprus or Dubai, restructuring your trusts, or seeking alternative strategies for wealth preservation, we are here to guide you through every step of the process.

Relevant article: UK’s HMRC Releases Non-Domiciled and Deemed Domiciled Taxpayer Figures: A Look at Alternatives for High Net-Worth Individuals

For further advice or to discuss how these changes may affect you, please contact us at agp@agplaw.com 

This article is provided for informational purposes only and does not constitute legal, financial, or tax advice. AGPLAW shall not be held liable for any decisions made based on the information herein. Readers are encouraged to contact us for professional advice tailored to their individual circumstances before taking any action. AGPLAW disclaims all liability for any direct, indirect, or consequential losses or damages arising from reliance on the content of this article.