10 July 2024
In the wake of the Spring Budget of 2024 for the United Kingdom (“UK”), which heralded a seismic shift in the taxation landscape for non-domiciled individuals in the UK (or UK non-doms as colloquially referred to), the allure of Barbados as a relocation destination has never been more pronounced. The impending abolition of the remittance basis of taxation and other changes has left many international entrepreneurs residing in the UK reassessing their fiscal domiciles.
We delve into the comparative advantages that Barbados offers, not only in terms of its favorable tax regime but also in lifestyle and residency options, making it an increasingly attractive haven for those looking to navigate the complexities of the UK's new tax reforms.
Changes to UK Tax Regime for Non-Domiciled Individuals
We set out key takeaways in relation to the proposed changes to the UK’s tax regime for non-domiciled individuals.
1. Abolishment of the Remittance Basis: The 200-year-old remittance basis of taxation, which allows non-domiciled individuals to be taxed only on their UK income and gains and on foreign income and gains they bring into the UK, will be abolished.
2. Introduction of the FIG Regime: A new four-year Foreign Income and Gains (“FIG”) regime will replace the remittance basis. Under this regime, individuals can elect to limit their exposure to UK income tax and capital gains tax on non-UK income and gains for four years after becoming UK tax residents, provided they have been non-UK tax residents for the previous 10 years. This regime is simpler but less generous than the remittance basis.
3. Transitional Arrangements: To soften the impact of these changes, the government has announced three transitional measures:
4. Protected Trusts: The status of protected trusts, which allows income and gains to accumulate free from UK tax until distribution, will be removed. Trusts settled by non-domiciled individuals will be subject to UK tax on an arising basis once the settlor can no longer elect to be taxed under the new FIG regime.
5. Inheritance Tax (IHT) Changes: The UK government plans to move to a residence-based regime for IHT, where an individual's assets are subject to UK tax based on their UK tax residency. There will be a 10-year grace period for incoming residents and a 10-year tail for those leaving the UK. The IHT status of property settled on trust before 6 April 2025 will not be affected by the new rules.
These changes aim to modernise the UK's tax system for non-domiciled individuals, making it simpler, fairer, and more competitive. However, the impact on wealth creators residing in the UK remains uncertain.
In light of the UK's proposed overhaul of its taxation system for non-domiciled individuals many mobile high-net-worth individuals may be considering alternative destinations that offer more favourable tax regimes. One such destination is Barbados, which retains a traditional approach to taxation, offering significant advantages for those looking to preserve wealth, as outlined below.
1. Taxation on Remittance Basis
Barbados continues to operate under a tax system that is particularly attractive to non-domiciled individuals. Individuals who are tax residents in Barbados but not domiciled in Barbados are subject to tax only on their Barbados-sourced income or foreign income that is remitted to the island. This means that income earned outside of Barbados and not brought into the country remains free from Barbados taxation. This is a stark contrast to the UK's new regime, which abolishes the remittance basis and introduces a less generous Foreign Income and Gains regime.
In addition, there are mechanisms to optimize the taxation applicable to any Barbados sourced income.
2. No Capital Gains Tax
Another significant advantage is the absence of capital gains tax in Barbados. This means that profits from the sale of assets, including property, stocks, and other investments, are not subject to tax, providing a clear benefit for investors and wealth creators looking to maximize their returns.
3. No Wealth or Inheritance Tax
Barbados does not impose wealth taxes or inheritance taxes, making it an attractive jurisdiction for individuals looking to preserve their wealth for future generations.
This is in contrast to the UK, where the government is moving towards a residence-based inheritance tax regime, potentially affecting non-domiciled individuals who have previously enjoyed a favourable tax treatment.
4. Lifestyle and Business Climate
Beyond the tax advantages, Barbados offers a high quality of life, with its beautiful beaches, warm climate, stable political environment, rich social and cultural life and a wide portfolio of real estate options to satisfy the most discerning palette.
For entrepreneurs wishing to operate a business from a sunny shore, Barbados offers a welcoming business climate with attractive corporate tax rates and other benefits, buttressed by a large pool of qualified local talent willing and ready to power the businesses of the future.
In terms of ease of movement, the island is well-connected internationally with non stop flights to key international destinations, making it a convenient base for global citizens.
5. Residency Options
Barbados offers several residency options for individuals looking to relocate, including the Special Entry and Reside Permit for high-net-worth individuals. This permit provides indefinite leave to remain in Barbados, further solidifying its appeal as a relocation destination.
Conclusion
In light of the UK's forthcoming tax changes for non-domiciled individuals, Barbados presents a compelling alternative for those seeking a more favourable tax regime without compromising on lifestyle. With its remittance-based taxation, absence of capital gains, wealth, and inheritance taxes, and its idyllic setting, Barbados is well-positioned to attract individuals seeking to preserve their wealth and enjoy a high quality of life.
If you would like to get in touch to discuss the opportunities offered by Barbados, please feel free contact us at info@ft-legal.com, or your usual contact at FT Legal.