The End of the UK’s Non-Dom Tax and Swiss Alternatives

The UK’s tax system has long been an attractive destination for the world’s wealthiest individuals, especially due to the benefits of the non-domiciled (non-dom) status. However, recent political changes, including the Labour Party’s victory and the consequences of Brexit, have prompted Britain’s ultra-wealthy to seek new tax havens. Switzerland, particularly the cantons of Bern and Valais, are increasingly emerging as potential alternatives in light of the abolition of the non-dom status.

The end of the UK Non-Dom System

For decades, the UK’s non-dom system made the country an appealing target for the world’s wealthiest individuals. This system allowed foreign nationals to enjoy certain tax benefits without having to fully declare their global income and wealth. It was particularly advantageous for those with significant overseas assets and income, as they only needed to pay tax on income and wealth sourced from the UK.

Why Was the Non-Dom System Attractive?

The non-dom system offered numerous benefits for wealthy foreigners:

1. Tax Reliefs: Individuals with non-dom status paid taxes only on their UK-sourced income and wealth. Foreign-sourced income and wealth were taxed only if brought into the UK.
2. Flexibility: The non-dom status allowed foreign nationals to enjoy the benefits of living in the UK without fully integrating into the tax system.
3. Attractive Immigration Destination: The favorable tax conditions made the UK an attractive destination for wealthy immigrants, who were eager to settle in London and other major cities, contributing to the country’s economy and cultural diversity.

Brexit and Labour Party’s Tax Policy Changes

In recent years, several factors have contributed to the end of the non-dom system:

1. Brexit: The UK’s exit from the European Union brought numerous regulatory and economic changes. The loss of EU membership benefits and the uncertainty caused by Brexit made many foreign investors and wealthy individuals reconsider their settlement plans.
2. Stricter Regulations: The tighter immigration and tax regulations associated with Brexit also contributed to the declining appeal of the non-dom system. New rules and checks make it harder for wealthy foreigners to exploit the previous benefits.
3. Labour Party Victory: The Labour Party’s victory on the UK political scene brought significant changes in tax policy. The party’s goals include reducing social inequalities and increasing taxation on the wealthy. To this end, they have targeted the abolition of the non-dom system and the introduction of a fairer tax system.

Impacts of Stricter Regulations

As a result, the UK is losing its appeal among wealthy immigrants. Many affluent foreigners who previously settled in London and other British cities are now seeking other countries with more favorable tax conditions and stability. This change impacts not only individuals but also the UK economy. Wealthy foreigners have contributed to the booming property market, luxury consumption, and charitable activities. Their departure could have long-term economic effects, including reduced investment and stagnant property prices.

An Attractive Alternative Switzerland

Switzerland has long been renowned for its stability and favorable tax environment. The country is known not only for its political and economic stability but also for its high quality of life, excellent infrastructure, and safety. These attributes make Switzerland particularly appealing to those seeking a new home in light of the abolition of the UK non-dom system. Specifically, the cantons of Bern and Valais offer tax opportunities that may attract wealthy British citizens.

Lump-Sum Taxation System

One of Switzerland’s most interesting tax options is the lump-sum taxation system, which bases the tax on living expenses rather than global income and wealth. This system allows non-Swiss nationals to enjoy wealth tax benefits without having to report their entire income and wealth. Instead, the tax is based on the cost of living in Switzerland, providing simplicity and predictability.

Tax Benefits in Bern and Valais Canton

• In Bern canton, lump-sum taxation is particularly favorable. Here, the wealth tax base is limited to the declared value of properties in Bern, rather than global wealth. This means individuals living in Bern canton can enjoy significant tax benefits, as they do not have to declare their global assets.
• In Valais canton, the lump-sum taxation system also offers attractive options. Here, the wealth tax base is four times the income tax base. This system can be advantageous for those who maintain a high standard of living but want to achieve lower tax burdens.

Wealth Tax Benefits

In Switzerland, wealth tax is determined by cantons rather than at the federal level. If the lump-sum taxation system is unavailable, the wealth tax benefits in Bern and Valais cantons offer significant advantages for taxing global wealth.

• Bern canton’s tax law limits the wealth tax to one percent of net investment income. This means that wealth derived from investment income will be less taxed, allowing individuals to retain and reinvest more income.
• Valais canton offers a tax reduction for those whose cantonal and communal wealth tax and tax on net investment income exceed 20% of their taxable net income. This benefit ensures that low-yielding assets are not overly taxed, promoting long-term wealth retention and growth.

Immigration Rules to Switzerland

Since Brexit, UK citizens are considered third-country nationals and face stricter conditions for obtaining residency in Switzerland. Numerous options are available for wealthy British citizens to settle in Switzerland, including the lump-sum taxation system, retirement visas, and entrepreneur visas.

• Retirement Visa: The Swiss retirement visa is reserved for those who can demonstrate they have sufficient financial resources to support themselves without working. This visa offers wealthy retirees the opportunity to enjoy Switzerland’s high quality of life and favorable tax environment.
• Entrepreneur Visa – The entrepreneur visa encourages investment in Swiss companies and the start of business activities. This visa allows wealthy individuals to conduct business in Switzerland, contributing to the local economy while enjoying low tax burdens.

Conclusion

The potential end of the UK’s non-dom system is forcing wealthy British citizens to seek new tax havens. Switzerland, especially the cantons of Bern and Valais, offers a favorable tax environment and could be a compelling alternative following the abolition of the UK’s non-dom status. The lump-sum taxation system and wealth tax benefits provide significant advantages, while various immigration options allow wealthy foreigners to find a new home and tax haven in Switzerland.

As the global economic and political landscapes shift, proactive tax planning and exploring alternative tax jurisdictions become increasingly important. Switzerland remains an attractive destination for those seeking optimal financial outcomes and wishing to preserve their wealth for the future. 

Helm Advisors, with many years of experience in immigration and international tax planning, is based in Switzerland and can expertly assist with relocation to Switzerland.