The proposed abolition of the UK non-domicile tax status

What is the current Non-Dom status?

Generally, individuals who are UK tax resident are subject to UK tax on their worldwide income and gains. The Non-Dom status currently allows individuals whose place of “domicile” is outside the UK to make a claim to be taxed on the “remittance basis”; this allows them to be taxed on their UK source income and gains, but only taxed on their non-UK source income and gains to the extent that they are remitted to the UK. This status could last for up to fifteen years, before they become “deemed domiciled”, and annual charges are applicable in some circumstances in order to benefit from the remittance basis of taxation.

The proposals

At this stage, the precise details of the new regime are not fully clear, and there could be yet further amendments, particularly if there is a change in government on or before the planned introduction of the new regime.

At this stage, we expect that with effect from 6 April 2025, the Non-Dom status will be abolished for income and capital purposes, and instead individuals who come to the UK for the first time after this date would have a four-year transitional period, and will then be taxable on their worldwide income and gains. In the first four years, they would not be subject to UK tax on foreign income and gains (FIG) even if remitted to the UK (the new FIG regime).

The four-year FIG regime for new residents is a strategic measure to facilitate a smooth transition into the UK's tax environment. After this period, the tax system should treat all residents uniformly, taxing worldwide income and eliminating the distinction between domiciled and non-domiciled individuals.

There will be a separate consultation on the impacts of the removal of the domicile concept from an inheritance tax perspective.

Impact on Existing Non-Doms

For Non-Dom individuals who are already tax resident in the UK, some may be able to benefit from the FIG regime for a period of time, depending on when they first became resident in the UK. For others, who currently have elected to be taxed on the remittance basis, they will be subject to tax on fifty percent of their non-UK income in tax years 2025/2026 and can elect to rebase certain assets that are personally held to their April 2019 values. To encourage remittance of historic FIG, there will be a temporary repatriation facility, allowing FIG earned personally to be remitted at a reduced rate of 12% for 2025/2026 and 2026/2027. The position for trusts is complex.

The impact on existing Non-Doms is anticipated to be significant The change will likely lead to a reassessment of their financial and investment strategies, as they will need to consider the tax implications on their global income. This could result in restructuring of investment portfolios and a reconsideration of residency status taking into account the tax impact of such changes.

Conclusion

The reform of the Non-Dom tax regime is a significant milestone in the evolution of the UK's fiscal policy. It will be essential for those affected to seek expert tax advice and carefully consider the implications for their personal tax situation. For those not yet well established in the UK (who may simply decide to stay in the UK) and who would have sought to take advantage of the Non-Dom regime before the reform was publicly announced, the proposed changes could be a game changer and lead to a beauty contest as to which jurisdiction might suit them best. In this context, other EU countries which currently offer similar remittance or inbound regimes but for a longer period than four years may be well placed to welcome some of them.

How many will stay, leave or will not come to the UK, that remains the question.