The 2024 Autumn Budget will have significant impact on international families that are resident or planning to become resident in the United Kingdom as it outlines plans to abolish the non-domicile tax regime.
In this article, Ellie Hampson-Jones examines the changes the Autumn Budget will cause to divorce and family law.
The impact of the UK Budget 2024 on international families
International families have long been attracted to the UK’s favourable resident non-domicile regime (“RND”). This has enabled them to benefit from living in the UK while sheltering and protecting offshore capital and income gains from the UK’s tax regime.
The RND framework has driven wealth planning since the introduction of the “remittance basis” of tax in 1799. Since then, the regime has remained largely unchanged for non-domiciles, apart from some tightening by the Conservative government in 2017.
Changes to the non-dom tax regime for wealthy individuals
From 6 April 2025 the Labour government’s budget changes are intended to abolish the non-domicile/domicile tax regime. Anyone domiciled outside the UK who is already or becomes resident in the UK may now, in due course, be taxed on their worldwide income and gains – albeit a transition period is anticipated.
This change in tax regime is driving many ultra-high net worth (UNHW) and high net worth (HNW) individuals to consider what is best for them and their families. Any wealth planning surrounding these changes requires an analysis of what is best for a family and also what might be best for the individual. The two may not always be aligned.
In planning, where significant wealth is being protected for current and future generations, families can often move to more favourable jurisdictions either temporarily or on a permanent basis in order to achieve what is best for the family as a whole. The changes now being implemented in the UK will force many families of very significant wealth to consider leaving the UK. If the family unit is under strain, such discussions will lead to the inevitable consideration about whether the marriage will survive in the longer term, and if there is hesitation about this, consideration of the financial implications of a divorce here in England as opposed to a divorce elsewhere. This could lead to a large number of pre-emptive divorces being issued in England prior to a relocation, or indeed individuals refusing to leave the country as part of any planned relocation.
"Matters of tax and sound financial planning have served as unifying aspects for married couples. These changes have the potential to do the exact opposite."
Carly Kinch, Partner in the Divorce and Family department
Key questions for married couples and parents within international families
“If I am relocating but thinking about divorce, should I begin the process before we leave and would it be more favourable to me if I do?”
For some, the decision to relocate with some immediacy to a more favourable tax jurisdiction will feel like an easy and obvious choice. This is particularly so when favourable regimes may only be as far away as a two-hour flight (Italy or Switzerland, for example). The question is, therefore, whether or not this is the right solution for an individual and/or their family.
If you are contemplating divorce or your marriage faces strain due to one spouse relocating, you should consider when to begin the divorce process and which jurisdiction is likely to be most favourable to you.
Less wealthy spouses may find they will be better provided for if they pursue their divorce claims in England rather than in their new country of residence. They will need to consider whether to initiate proceedings promptly before they relocate. This may result in a spouse ‘pulling the trigger’ now to secure jurisdiction here while they are habitually resident in England.
The flip side is that a wealthier party may wish to do their best to make their marriage work until the couple have moved overseas and are habitually resident in a jurisdiction with a clear matrimonial property regime. Such jurisdictions could well ring-fence separate property in a way the English discretionary system might not. Or, they may consider moving to a jurisdiction that regards pre- or post-nuptial agreements as automatically binding (again, rather than England, where the fairness of such an agreement will be considered when evaluating whether or not it should be upheld).
Partner Sam Longworth comments: “There would be nothing to prevent a spouse from commencing divorce and financial proceedings in England before their relocation (ie while they remained habitually resident here) and subsequently litigating from abroad. Conversely, if they do not start proceedings before they relocate, they may later be unable to bring proceedings in England and/or at risk of their spouse triggering a divorce in a less favourable jurisdiction. These are significant considerations for anyone contemplating divorce and/or relocation.”
“What happens if one parent wants to leave the UK but the other parent wants to stay? Who decides where the children live?”
Children may be happy and well-settled in the United Kingdom. They may be of an age or have additional support needs that mean the drastic change of relocating may not be best for them regardless of the wealth protected for the family as a result of such change.
Generally, the courts of England and Wales will not intervene in parents’ disputes over arrangements for children unless one parent invites them to adjudicate the issue. Parents must either agree or have a court order to remove a child from England and Wales, even for a short period, such as going on holiday.
If one parent wishes to leave the United Kingdom for tax reasons, the other parent will need to consider whether this move is in the child’s best interests. If they consider it is, they may also need to consider any implications if the relationship later breaks down. There are, for example, certain jurisdictions that only recognise the rights of one parent in the event of a divorce (unlike England, which recognises both parents’ rights).
Without any agreement, the parent wishing to relocate will need to persuade the family court that relocation is in the child’s best interests. Where the relocation is motivated solely by tax planning, it may be an uphill struggle to convince a court of this, particularly if it will significantly change the child’s time and relationship with the parent who does not move.
Senior associate Trevona Hettiarachchi says: “Moving children between countries, even for short periods, needs to be agreed between parents. For some separated parents, this can be a contentious issue. Without an agreement between parents, children cannot be taken abroad without the court’s permission. This issue may come into sharp focus for separated parents who plan to leave the UK following the abolition of the non-domicile status. The family court may be asked to determine applications by separated parents wishing to relocate to a more favourable tax jurisdiction with their children. How the court will deal with these applications remains to be seen. The child’s welfare will be the court’s paramount consideration in determining whether or not a parent should be allowed to leave with their children. Relocating solely for tax purposes is unlikely to be persuasive if the arrangements in the new jurisdiction do not also prioritise what is best for the children.
“It is in children’s best interests for arrangements for their care and living situation to be agreed upon between their parents. Where this is not possible, parents should take specialist family law advice early to understand the available mechanisms for resolving any disagreements, including out-of-court options such as arbitration. Parents are being explicitly told by the President of the Family Division that an application to the court should be the last resort, taken only when all other options have been exhausted.”
“If my spouse and I move abroad, is there a way to regulate how our assets are divided if we get divorced?”
Spouses considering leaving England in response to the changes in the non-domicile rules may wish to guard against the uncertainty that may otherwise accompany the move by entering into a post-nuptial agreement.
A post-nuptial agreement is an agreement signed between spouses during their marriage that seeks to regulate the financial consequences of a subsequent breakdown of the marriage. It is treated under English law in the same way as a pre-nuptial agreement, save that it can be entered into at any point during a marriage.
The treatment of nuptial agreements varies from country to country. For instance, in England, nuptial agreements are not legally binding contracts. While a fair nuptial agreement can be persuasive when the English court determines a financial award, it cannot entirely oust the discretion of the English court on divorce. This is at odds with many jurisdictions worldwide, such as Switzerland, for example, where nuptial agreements properly entered into are binding and enforceable. If that is the case in their new country, financially stronger spouses may wish to take advantage of the contractual status afforded to nuptial agreements and enter into them before any relocation.
Carly Kinch comments: “It is also possible to include a clause within a nuptial agreement which identifies the country that would determine the parties’ financial claims in the event of divorce. For instance, parties could agree that if their marriage breaks down, their divorce and financial claims would be heard in England, even though they relocated to a foreign jurisdiction. Whether that clause would be effective depends on the law of the country(s) in question, so local advice should be sought in this respect.”
“We are not married but live together. If we move abroad, how will this affect my rights as a cohabitee?”
In England, there is no such thing as common law marriage. Unmarried couples, even those who have lived together for many years, have no automatic rights against their partner on separation. This is at odds with many foreign jurisdictions, where rights may be granted to unmarried couples by virtue of their cohabitation.
Carly Kinch comments: “Before moving abroad, unmarried couples should seek local advice to ensure they understand the position regarding common law marriage and/or cohabitation rights in the new country they choose to live in. A wealthier party may wish to avoid inadvertently developing financial obligations towards their partner in their new nation as a result of cohabiting.”
“We are already separated. How will this affect our parental responsibilities and financial arrangements?”
Child arrangements
For those already separated, if one parent is relocating, families may need to revisit existing childcare arrangements. Issues such as the division of the child’s time may need to be reconsidered if separated parents who both previously lived in the same country now live in different countries. Serious thought will need to be given to logistics and practicalities. Can the child travel on scheduled flights, or will chartered planes be required to overcome some airline’s “unsupervised minor” policies? All of these arrangements can provide an opportunity for disagreement and conflicting opinions as to what is best for children.
The English court will have jurisdiction over a child habitually resident in England and Wales. If, for example, one parent agrees a child should attend an international boarding school and/or spend half or more than half their time with their parent in the new country, they might need to consider whether such an arrangement will affect the ‘see-saw’ in favour of a foreign court having jurisdiction over the child. This is a complex area of law that requires careful thought before any new arrangements are committed to.
Finances
For those who are already separated and yet to agree a final financial settlement, analysis will need to be carried out on any tax consequences of the transfer of assets. The timing of any such transfers will be critical, as will any tax mitigation and planning. While the English court deals with assets net of tax at the date of any final hearing, it will be essential to understand if any assets will be rebased and/or the resultant tax due in order to help the court determine a fair outcome. The court is unlikely to make an order that would leave one party with substantial latent tax issues.
Conclusion
Whilst the tax consequences of these changes for the ultra and high-net worth community will be readily apparent, the nexus between these changes and family law matters will be less clear. These changes create a very real potential conflict between what’s best for an individual’s family unit, what’s best for that individual as a spouse and what’s best for that individual’s children. Where there are overlapping and competing motivations, planning should include strategic and tailored family law advice.
These changes will have significant impact for high-net-worth individuals in the UK or those moving overseas. It is important to seek personalised advice on what these changes might mean for you or your families future.
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