The UK government has announced significant changes to the tax regime for non-domiciled individuals (non-doms), set to take effect from 6 April 2025. This reform aims to simplify the tax system and increase revenue by abolishing the existing non-dom status, which has allowed wealthy individuals to avoid UK taxes on their foreign income and gains.
Key Takeaways
The non-dom regime will be abolished from 6 April 2025.
A new residency-based tax system will be introduced.
Non-doms will be taxed on their worldwide income and gains after four years of UK residency.
Transitional reliefs will be available for current non-doms.
Overview of Changes
The current non-dom regime allows individuals who are UK tax residents but not domiciled in the UK to pay tax only on their UK income and gains, while foreign income and gains remain untaxed unless brought into the UK. This system will be replaced by a residency-based approach, which will apply to all individuals regardless of their domicile status.
New Residency-Based Tax System
From 6 April 2025, the following changes will be implemented:
Four-Year FIG Regime: New arrivals to the UK who have been non-resident for at least ten consecutive years will benefit from a four-year exemption from UK tax on foreign income and gains.
Worldwide Taxation: After the initial four years, individuals will be taxed on their worldwide income and gains, with no special treatment for foreign income.
Inheritance Tax (IHT) Changes: Non-doms will be subject to IHT on their worldwide assets after ten years of UK residency, ending the current exemption for non-UK assets.
Transitional Provisions
To ease the transition for current non-doms, the government will introduce several reliefs:
Temporary Repatriation Facility (TRF): Non-doms can remit previously untaxed foreign income and gains to the UK at a reduced tax rate of 12% during the 2025-26 and 2026-27 tax years.
Capital Gains Tax Rebasing: Individuals can rebase their foreign assets to their market value as of 5 April 2019 for CGT purposes, allowing for a more favourable tax treatment on future gains.
Reduced Tax on Foreign Income: For the 2025-26 tax year, only 50% of foreign income will be subject to tax for those transitioning from the non-dom regime.
Implications for Non-Doms
These changes represent a significant shift in the UK tax landscape, particularly for wealthy individuals who have benefited from the non-dom status. The new rules will require careful planning and consideration of tax strategies to mitigate potential liabilities. Non-doms are advised to review their financial arrangements and seek professional advice to navigate the upcoming changes effectively.
Conclusion
The abolition of the non-dom regime marks one of the most substantial reforms to UK personal tax in decades. As the government aims to increase tax revenue and simplify the tax system, individuals affected by these changes must prepare for a new era of taxation that prioritises residency over domicile status.
Sources
Some certainty at last from Labour for non-doms | RSM UK, RSM UK.
Abolishing 'non-dom' status | Rothschild & Co, Rothschild & Co.
Non-dom regime: UK Government clarifies tax changes, Farrer & Co.
Reform to non-dom rules: Labour party announcements, Farrer & Co.
Non-dom tax changes: the FIG regime, CGT and income tax - Saffery, Saffery.
Changes to the taxation of Non-UK domiciled individuals : Clyde & Co, Clyde & Co.
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