A new era: the abolition of non-domicile status – what now?

The chancellor’s announcement in Spring Budget 2024 of the abolition of the tax favoured status for non-UK domiciled individuals (non-doms), with effect from 6 April 2025, went further than pre-budget leaks suggested. It also looks likely to affect a much wider range of people than the non-dom label suggests. So far, we do not have details of how the changes will work, and it will be important to wait to understand the implications better before acting. However, there is still plenty to think about in the meantime.

What is non-dom status?

Broadly, non-dom status allows UK resident individuals for whom the UK is not their permanent home not to be taxed on foreign income and gains unless these are used in, or remitted to, the UK. It also excludes non-UK assets from UK inheritance tax (IHT) when the non-dom dies.

The new regime

From 6 April 2025, the non-dom regime will begin to be phased out of the UK tax system, and replaced with a system based around an individual’s residence status. 

A new tax favoured regime will instead be available to anyone who has been non-UK resident for at least the previous 10 tax years, including Brits who have been living abroad.

Qualifying individuals will not be taxed on foreign income and gains (FIG) for their first four years of UK residence, even if such amounts are brought into or used in the UK. However, from year five, they will be taxable in the UK on their worldwide income and gains in full. 

Transitional provisions

Transitional arrangements will be available for nom-doms under the current regime that are existing or past ‘remittance basis users’.

• For 24 months from 6 April 2025, qualifying individuals can remit historic untaxed FIGs to the UK at a reduced rate of 12%. Simplification of the existing mixed fund ordering rules is also expected. 
• For 12 months from 6 April 2025, non-doms taxed on the remittance basis in 2024/25 will only pay tax on 50% of their foreign income (this does not apply to capital gains).
• Former remittance basis users will be eligible to rebase their capital assets to their open market value as at 5 April 2019, meaning that only the growth in value between April 2019 and the date of a future disposal will be subject to UK tax.   

Inheritance tax

Inheritance tax is also set to change from a domicile-based to a residence-based regime. 

Subject to consultation, worldwide assets will be subject to IHT for anyone who has been a UK resident for 10 years, and IHT will continue to be payable on them on death within 10 years of leaving the UK. 

Initial thoughts

The proposals will create a level playing field for all individuals, based on length of time spent in the UK rather than the difficult to define concept of domicile. As such, it should add clarity and certainty to the UK tax system.

The opportunity for remittance basis users to pay a flat 12% tax rate to remit existing FIGs could provide a one-off tax saving for affected individuals and a boost to the UK Treasury, but there is a question over how widely it will be taken up – opinions are mixed as whether this is a good or a bad deal. 

Opinions are also mixed about the effect the rules will have on encouraging talent to move to and stay in the UK. We are already hearing some non-doms talk about moving abroad, and numbers may rise as the implications of the new rules sink in. For some though, the transitional rules provide a perfect opportunity to simplify their affairs, and come as a welcome surprise.

Next steps 

At the time of writing, the date on which draft legislation will be published is currently unknown, and making binding decisions based on government press releases is probably unlikely to end well. However, having a clear strategy to deal with the new rules will be important and non-doms should begin to consider their circumstances now. 

For more information, please get in touch with Andrew Robins or your usual RSM contact.