Barbados Beckons
by Tara Frater
The recent changes to the tax regime announced in the Autumn 2024 Budget for the United Kingdom (UK) represent a significant shift in tax rates and structures. These tax changes in the UK have left many wealthy individuals and international entrepreneurs residing in the UK urgently reassessing their fiscal domiciles. Against this backdrop, the allure of Barbados as a relocation destination has never been more pronounced. It offers great value for persons who are taxable in the UK.
Historically, in the UK the non-domicile regime has historically allowed individuals residing in the UK to limit their tax liabilities on foreign income and gains. The concept of domicile for tax purposes essentially relates to the idea of “permanent home”. A person was generally deemed to be domiciled in the place where firstly, they resided as a matter of fact, and secondly, with an intention of doing so permanently or indefinitely. Thus, it was possible for a person to be “resident” for tax purposes in the UK, although not deemed to be “domiciled” there.
Under the historical regime in the UK, a non-domiciled person could choose to be taxed only on their UK sourced income and gains, excluding taxation on overseas earnings unless they were brought into or remitted to the UK. However, significant changes are set to take effect in the UK from 6 April 2025 which will affect their worldwide wealth. The new rules will eliminate the remittance basis of taxation and introduce a four-year foreign income and gains (FIG) exemption for new arrivals who have not been UK tax residents in the previous ten years.
There are some important considerations to keep in mind with the upcoming changes. From April 2025, individuals will no longer be able to use the remittance basis to lawfully avoid taxes on foreign income unless they qualify under the new FIG regime.
Then there is the four- year FIG exemption. New residents will enjoy a complete exemption from tax on foreign income and gains for their first four tax years in the UK, provided they were not resident in any of the previous ten years. This aims to attract international talent while simplifying tax obligations. There will also be a change from domicile-based system to residence-based system for determining tax liability. Going forward, residency will dictate Inheritance Tax obligations on worldwide assets.
In relation to gains on disposals made on or after 30 October 2024 the main rate of Capital Gains Tax (CGT) is increased from 10% (basic rate taxpayers) and 20% (higher rate taxpayers) to 18% and 24%, respectively (with rate of CGT on disposals of residential property (18%/24%) remaining unchanged); and the rate of CGT applicable to personal representatives and trustees is increased from 20% to 24%. The rates for Investors’ Relief and Business Asset Disposal Relief will see a phased increase over 2025 and 2026.
These, and other changes in the UK significantly alter the tax base and reflect a significant shift in how wealth is taxed in relation to residency, rather than domicile status. For many wealthy individuals in the UK, relocation to another jurisdiction is timely.
Barbados retains a fiscal approach which offers significant advantages for those looking to preserve wealth, as outlined below.Firstly, it 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.
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. Barbados also does not impose wealth taxes or inheritance taxes, making it an attractive jurisdiction for individuals looking to preserve their wealth for future generations.
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 of up to 9% and other benefits, buttressed by a large pool of qualified local talent willing and ready to power the businesses of the future. Yet in terms of ease of movement, the island is well-connected internationally with nonstop flights to key international destinations, making it a convenient base for global citizens.
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.
In light of the UK’s forthcoming tax changes, 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.
