The amount of tax paid by people with non-UK domicile (‘non-dom’) status hit an all-time high in the 2022-23 financial year, up 6% on the previous year. There are also record numbers of non-doms living in the UK now, with 74,000 people registered for non-dom tax status. This may be about to change, because non-dom tax policy is one of the areas where we expect to see rapid changes under the new Labour government.
Here’s what we know will happen to the tax rules, although further changes may also be introduced. These changes will affect existing non-doms who have been in the UK for a number of years and also new entrants to the UK.
How will tax for long term UK non-doms change?
Remittance based tax policy will cease
The current remittance basis of taxation will be abolished for all UK resident non-domiciled individuals from 6 April 2025, regardless of how long they have lived in the country. This means long-term non-doms will no longer be able to use this system of selectively controlling the income they can bring into the UK to avoid tax on foreign income and gains. Instead, their worldwide income and gains will be taxed ‘as they arise’, just like other UK residents.
Currently the remittance basis entitles individuals registered as non-doms to choose to pay UK tax on their UK source income and gains; and on foreign income and gains that are brought (remitted) to the UK. Foreign income and gains that remain outside the UK can remain untaxed.
These new rules removing the right to claim a remittance basis will apply for all non-UK domiciled individuals who have lived in the UK for at least four years, regardless of how long they’ve been in the UK. The effective date will be April 6, 2025.
In addition to introducing more wide-reaching taxation, Labour has also committed to exploring ways to encourage the repatriation of assets that have been sheltered abroad.
Removal of trust shelters
From 6 April 2025, existing protection from taxation on income and gains within trust structures will be removed for all current non-domiciled and deemed domiciled individuals who do not qualify for the new 4-year foreign income and gains (FIG) regime. This means long-term non-doms will face increased taxation on offshore trust arrangements, regardless of when their assets were placed into a trust.
Changes to IHT policy for non-doms
Inheritance tax rules in the UK are also expected to change from a domicile-based system to a residence-based system. While the finer details are still to be confirmed, it’s envisaged that IHT will be charged on the worldwide assets of individuals who have been UK resident for ten years, with the intention to retain this position for ten years after they leave the UK. In addition, inheritance tax is set to be charged on all non-UK assets held in a UK trust, regardless of when they were put into trust.
Importantly, there may be no transitional provisions offered to existing non-doms, although it is possible that some new rules may be announced in the 2024 Autumn Budget.
In summary, long-term non-doms in the UK will face significant changes to their tax situation from April 2025, with the end of the remittance basis and the introduction of worldwide taxation. They should seek professional advice as soon as possible to understand how these changes will affect their specific circumstances and to plan accordingly, taking into consideration any other more tax-efficient options.
If you would like to discuss personal tax planning strategies, please contact us via partners@rjp.co.uk.