Why the UK Is Scrapping a Strange 1799 Law

King George had just lost the 13 American colonies… and he was determined not to lose any more.

In 1799, His Majesty’s Revenue and Customs created a special tax system for wealthy aristocrats who’d been ploughing money into Britain’s overseas colonies.

The system allowed people with financial interests outside the home islands to declare themselves not domiciled in the United Kingdom for tax purposes.

That allowed them to exempt much or all their foreign income from UK taxes, only paying tax on money brought back into the Kingdom.

This was called “non-domiciled” status (non-dom for short).

225 years later, the Brits have had enough.

Non-dom status is set to disappear in April 2025…

During the Napoleonic Wars (1799–1815), non-dom status encouraged wealthy Brits who spent most of their time in the colonies to remain British subjects, so they paid at least some tax. But that excuse disappeared long ago.

Since the fall of the British Empire, jet setters and wealthy business execs have used non-dom status to pick and choose the cheapest tax domicile—places like the United Arab Emirates, which has no income tax—while enjoying the right to live and work in the UK.

For example, Stuart Gulliver, CEO of international bank HSBC, is a British citizen born and raised in the UK. But he established tax domicile in Hong Kong in the ‘90s. He lived and worked full-time in the UK for decades, owning several homes and sending his kids to school there—and paying a fraction of the tax he’d be liable for without non-dom status.

Non-Brits like Russian oligarchs also took advantage of non-dom status to live in Britain without paying tax on most of their income.

Some years back, Parliament passed a law saying that anyone with a seat in the House of Lords who benefited from non-dom status would have to give it up. A dozen hereditary peers chose to leave rather than pay tax like any other Brit.

The straw that seems to have broken the camel’s back is one Akshata Murty, wife of Prime Minister Rishi Sunak. She owns £700 million worth of shares in the Indian IT giant Infosys, founded by her father. She was able to avoid UK income tax on £11.6 million in annual dividend income. (Political pressure eventually forced Ms. Murthy to pay tax on it anyway.)

Even conservative media outlets like the Financial Times have called non-dom status unfair. A British resident without foreign tax residency pays dramatically more tax than a fellow Brit with the same income who manages to get one.

Since British subjects are taxed on their worldwide income, ordinary folks with, say, rental properties in Spain are taxed on all their foreign income… unlike their vastly wealthier compatriots.

The changes won’t happen all at once. New immigrants and anyone who currently enjoys non-dom status will be exempt from tax on foreign income and capital gains for four years.

Nevertheless, once the rules have been fully applied, the UK estimates it will receive about $3.5 billion dollars more in tax every year—which the government says allows it to cut payroll taxes for working families.

The lesson here is relevant to us ordinary mortals…

Attractive tax systems that benefit foreigners are always subject to change… even those that have been around a very long time.

If you’re looking for special tax advantages when moving abroad, pay careful attention to the politics. They may not be around forever…

For more in-depth coverage of global tax issues for Americans… including my presentations, “Three Ways Never to Pay US Income Tax Again” and “The Only Place on Earth Where You Don’t Have to File a US Tax Return”… click here to sign up for my special tax seminar on April 3.