The proposed taxation of the overseas income of non-UK domiciled residents by the United Kingdom government has triggered a rush among wealthy non-resident Indians there to establish tax-friendly ownership structures in alternative jurisdictions, experts said.
The UK government’s plan to significantly alter its tax system for non-residents starting in April next year has sparked a surge in client inquiries, particularly from NRIs living in the UK. Previously, non-domiciled individuals like NRIs were taxed solely on their UK-based income. However, the government’s proposal to reduce the exemption period to four years from 15 has disrupted financial planning for many.
As a result, NRIs are actively exploring options to safeguard the income generated by their India-based assets from higher taxation.
“Families who hold non-UK situs assets would look at alternate jurisdictions to create holding structures that would safeguard it from taxes in the UK under the proposed regime,” said Suraj Malik, managing partner of Legacy Growth, a firm that advises India’s wealthy individuals. “Families are also contemplating disconnecting the control of UK-based beneficiaries from the assets through multiple layers of entities or trusts in jurisdictions such as Jersey, the UAE or Singapore.”
Dubai is emerging as a preferred destination for global tax residency, especially for prospective NRIs and recent UK residents with less than six to seven years of residency.
The potential tax reforms in the UK could propel Dubai to the forefront of choices for Indian NRIs seeking favourable tax conditions. With minimal personal taxation and a lifestyle akin to other global financial centres, Dubai is an attractive option for those looking to mitigate their tax burden.
“With the new tax proposals, it is likely that the UK may lose its shine amongst HNIs as their tax outflows may outweigh the desire to be in UK. The rate of taxes could go as high as 40 percent to 45 percent for income like dividend, rents, etc,” said Amit Singhania, founder of Areete Law Offices. “This may go in favour of Dubai, which is an emerging destination amongst HNIs. The personal tax rate in Dubai is still zero.”
Additionally, the proposed tax changes impact succession planning due to the estate tax applicable in the UK. While India currently exempts such activities from taxation, the UK levies a 40 percent estate tax, which would also apply to Indian properties owned by NRIs.
The shifting tax landscape in the UK may diminish its appeal among prospective residents.
“The recent tax reforms in the UK, particularly the shift towards taxing global income, may potentially erode the attractiveness of the country for prospective residents.” said Sandeep Jhunjhunwala, M&A tax partner at Nangia Andersen LLP. “Notably, Dubai currently boasts a tax environment characterised by the absence of personal income taxes and lower corporate tax rates. In light of these considerations, Dubai is poised to emerge as a prominent destination for the Indian diaspora seeking favourable tax conditions and financial opportunities.”
The UK has been a popular destination for wealthy Indians looking for global citizenship. According to various reports, as many as 254 Indian millionaires became tax residents of the UK under the ‘golden visa’ route before the scheme was discontinued by the UK government in 2022.
Wealthy individuals choose UK as a destination for the benefits it offers including healthcare, education and quality of life. Until now, it even offered tax sops for the wealthy who relocate to the UK. According to Indian government data, more 83,468 Indians have renounced their India citizenship for the UK in past five years.