After publicised plans to close the ‘loophole’ tax regime for non-doms, chancellor Rachel Reeves’ Autumn Budget has confirmed the new rules.
“Non-dom” describes a UK resident whose permanent home – or domicile – for tax purposes is outside the UK. It refers to a person’s tax status, and has nothing to do with their nationality, citizenship or resident status – although it can be affected by these factors.
A non-dom pays UK tax on money they earn in the UK. Money earned elsewhere is only affected if it is paid into a UK-based bank account.
Nominating a lower-tax country as their main residence can offer significant and legal savings to non-doms.
From 6 April 2025, the current remittance basis regime will be replaced with a residence-based test. The new regime will be available for up to four years starting from 6 April 2025, or the first tax year in which the individual becomes UK resident if later.
During these four years, new arrivals to the UK will not be subject to tax on their foreign income and gains (FIG), nor on distributions from non-resident trusts. These can be brought into the UK freely without attracting a tax charge. Those opting into the four-year FIG regime will lose their entitlement to personal allowances and annual exempt amounts capital gains tax.
Chancellor Rachel Reeves told MPs: ‘The Budget is closing loopholes in the tax system, including replacing the non-dom tax regime with a new residence-based system to make sure that everyone who makes their home in the UK pays their taxes here.’
The changes will involve £30 million in implementation costs and anticipated additional tax income of £5 – £6 billion each year.
How many people are impacted by the new non-dom rules?
‘Non-doms are often wealthy people who are usually very mobile,’ says Emily Bridges, international tax expert at re:accounts Chartered Accountants in Stevenage. ‘While the chancellor plans to raise tax income, the new rules mean some non-doms may reconsider whether the UK is the best location for them.’
Of the total 83,800 non-domiciled residents in the UK in 2023, just 14,800 can take advantage of the four-year FIG regime.
For non-doms who have been in the UK for 10 years or more, the 50% discount on foreign income proposed by the previous Conservative government will be removed from April 2025. In addition, inheritance tax (IHT) will also apply to worldwide assets.
Non-doms are highly mobile. Some experts claim the new regime will lead to a mass departure of non-doms from the UK before April 2025. Watch this space!
Are you affected by the non-dom rules?
International tax is a specialist focus of re:accounts. If you would like advice on leaving or moving to the UK tax efficiently, please contact us for an initial discussion without obligation. We’d love to help you navigate the changes and minimise your tax liability.
