UK Autumn Budget 2024, The Pro’s, Con’s, Expectations & Opportunities for UK based UHNW Non-Doms
The 2024 Autumn Budget in the UK has introduced significant changes that will impact Ultra High Net Worth (UHNW) non-domiciled individuals (non-doms) in London, as well as the future of property investments in central London. Below is an analysis of the pros and cons for UHNW non-doms and expectations for property investments.
Pros and Cons for UHNW Non-Doms
1: The Pros
– 4-Year Foreign Income and Gains (FIG) Regime: The budget introduces a 4-year FIG regime starting from April 2025. Under this regime, non-doms who have been non-UK residents for at least 10 consecutive years prior to becoming UK residents will not be taxed on their foreign income and gains (whether remitted to the UK or not) during their first four years of UK residence. This provides some relief and flexibility for new non-doms planning to relocate to the UK.
– Temporary Repatriation Facility (TRF): A TRF will be available from 2025 to 2028, allowing individuals who have previously been taxed under the remittance basis to bring foreign funds into the UK at a reduced tax rate of 12% in the first two years, increasing to 15% in the final year. This offers an opportunity for non-doms to repatriate funds at a lower cost.
– Rebasing of Foreign Assets: Non-doms who were taxed on a remittance basis can rebase their foreign assets as of April 2017 for disposals after April 2025. This could reduce capital gains tax (CGT) liabilities on future disposals of foreign assets.
2: The Cons
– Abolition of the Remittance Basis: One of the most significant changes is the abolition of the remittance basis from April 2025. Currently, non-doms can avoid paying UK taxes on foreign income and gains as long as they are not brought into the UK. After April 2025, all worldwide income and gains will be subject to UK tax, regardless of whether they are remitted to the UK. This could lead many UHNW non-doms to reconsider their residency or financial strategies.
– Inheritance Tax (IHT) Changes: From April 2025, domicile will no longer be a relevant factor for IHT purposes. Instead, if an individual has been resident in the UK for at least 10 out of the last 20 tax years, their worldwide assets will be subject to IHT. This could significantly increase tax liabilities for long-term residents with substantial overseas assets.
– Increased CGT Rates: The maximum rate of CGT will increase from 20% to 24%, aligning with rates imposed on disposals of UK residential property. This could discourage investment in certain types of assets due to higher exit costs.
Future Property Investments in Central London
Expectations
– Stamp Duty Land Tax (SDLT) Surcharge Increase: The budget increases the SDLT surcharge on additional homes by 2%, from 3% to 5%, effective October 31, 2024. This could deter further buy-to-let investments, especially from older investors who dominate this sector. As a result, supply may decrease further, potentially leading to higher rental prices due to limited availability.
– Impact on Property Prices: The increased SDLT surcharge is expected to reduce demand for second homes and investment properties, which could slow price growth in central London’s high-end property market. However, given London’s status as a global financial hub, demand from international investors may still persist despite higher transaction costs.
– Affordable Housing Initiatives: While £3.1 billion has been allocated towards affordable housing, there is scepticism about whether this will be enough to address supply issues in high-demand areas like London. The lack of incentives for bringing empty homes back into use further complicates efforts to increase housing availability.
Challenges
– Potential Decline in Non-Dom Investment: With the abolition of the remittance basis and increased taxes on foreign income and gains, UHNW non-doms may reduce their property investments in central London. Some may even consider relocating outside the UK due to these unfavourable tax changes.
– Rental Market Pressure: Reduced buy-to-let investment could exacerbate existing supply shortages in London’s rental market, driving up rents even further. This would make it more difficult for first-time buyers and renters alike.
In summary, while there are some transitional reliefs for UHNW non-doms under the new budget, such as the FIG regime and TRF, the overall sentiment is that these individuals face higher tax liabilities moving forward. This could lead them to reconsider their residency or investment strategies in London. Additionally, property investments in central London may see reduced demand due to higher transaction costs from SDLT surcharges and less favourable tax treatment for non-doms.
Overseas Opportunities Following the Budget
The 2024 UK Autumn Budget, which includes the abolition of the non-domiciled (non-dom) tax regime, is expected to drive many Ultra High Net Worth (UHNW) non-doms out of the UK. This presents a significant opportunity for overseas luxury real estate markets, particularly in regions like the Algarve in Portugal.
As UHNW non-doms make the decision to exit the UK due to unfavourable tax changes, many are likely to reinvest in overseas luxury property markets like the Algarve.
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The combination of Portugal’s favourable tax regimes, stunning natural beauty, and growing international connectivity makes the Algarve an attractive alternative for those looking to relocate their investments while enjoying capital appreciation in a thriving luxury real estate market.
With the UK government removing the remittance basis and introducing a more stringent tax regime, many UHNW individuals are looking for more favourable tax environments. The Algarve, with its attractive tax incentives and luxurious lifestyle, is emerging as a prime destination for these investors.
Portugal’s Non-Habitual Residency (NHR) scheme, even with upcoming changes in 2025, remains appealing to wealthy expats seeking tax efficiency and a luxury lifestyle. The Algarve offers significant capital growth potential, driven by strong international demand and a limited supply of high-end properties.
Key areas such as Quinta do Lago and Vale do Lobo have seen property values rise by up to 15% in 2024. Additionally, the region’s focus on sustainable luxury developments and modern amenities adds to its appeal for UHNW individuals seeking both lifestyle benefits and investment opportunities.
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