What do the non-dom changes mean for me now?

If you’ve been wondering what to do next since Rachel Reeve’s first Autumn Budget held back in October 2024, then our article will explain what changes are coming for non-doms and what taxes will start to impact you here in the UK, allowing you to plan for the future.

What does non-dom mean?

Non-dom is the shortened term for “non-domicile”. It is used to describe an individual who may be temporarily based in the UK but has an official and permanent home elsewhere. It is a term that is used to describe a person’s tax status because where someone can be described as a non-dom, their income, earnings, and gains are taxed differently than those who are domiciled in the UK. Non-dom does not indicate a person’s nationality, citizenship, ethnicity, or residency status but can be affected by these factors.

How do I know if I’m a non-dom?

For most people, your domicile is determined at birth, and this is called your domicile of origin. It is not necessarily where you are born, but rather where your father’s domicile was at the time of your birth. Or, if your parents were not married at the time of your birth, you take on your mother’s domicile instead.

It is possible to change your domicile to a domicile of choice but only where you are aged 16 or over. This requires you to permanently cut ties with and live in another country other than the one in which you were originally domiciled. If you are under 16 years of age, your domicile can be a domicile of dependence. This means that your domicile can change according to the domicile status of the person you are legally dependent upon.

However, even where you satisfy any of the definitions above and are not considered to be domiciled in the UK by those measures, it is still possible for you to be “deemed” UK domiciled. Whilst this does not change your official domicile, it does affect how you are treated for UK tax purposes. You may be deemed UK domiciled where it can be established that you have been a UK resident for at least 15 out of 20 tax years previous to the relevant tax year for which you are being considered deemed a UK domicile.

Establishing whether you are a UK resident has its own set of rules and tests, making determining whether you are a non-dom complex. Since April 2017 you will be treated as a UK resident where you have spent 183 days or more in the UK; or you only have a UK home which you have spent 91 consecutive days or more in (30 days must be spent in the relevant tax year in question); or you have worked full-time in the UK for 365 days or more. If you need help deciding, you can also try using the Gov.uk online residence status checker, but as you can see, determining your domicile status can be complicated, so you may wish to seek professional advice depending on your own individual circumstances.

So, how am I taxed if I’m a non-dom?

Currently, non-UK domicile individuals can elect to use the remittance basis tax regime. This allows you to only be subject to UK taxes on income and capital gains tax you incur in the UK, or where you bring external funds into the UK from abroad. It also means that your worldwide assets are protected from UK inheritance tax so long as they remain outside of the UK. Non-doms therefore have access to a far more favourable tax treatment than those who are UK tax residents as they are required to pay UK tax on any foreign income. 

To use the remittance basis, you must make an election each year through your self-assessment tax return. If you do not make an election, the remittance basis does not automatically apply, and you will be subject to UK tax on all your foreign income and gains (FIG).

If you choose to use the remittance basis then there is a charge of £30,000 if you have been a UK resident for 7 of the previous 9 tax years. This fee increases to £60,000 if you have been a UK resident for 12 of the previous 14 tax years.

How are things changing under the new rules for non-doms?

It was announced on 30 October 2024 during the Autumn Budget that the non-dom regime would be abolished come 6 April 2025. Instead, if you are a new arrival to the UK or are returning to the UK after at least 10 years of absence, you will not be required to pay tax on your FIG for the first 4 years of becoming a UK tax resident. It remains that any income brought into the UK or earnings and gains made in the UK will be subject to UK taxes.

Similar to the remittance basis regime, the FIG regime will be optional, so you’ll have to elect for your taxes to be treated as such in your self-assessment tax return each year. You should be aware though, that by electing to not be taxed on your FIG, you’ll also lose your entitlement to the personal income tax allowance (£12,570 for the 2024/25 tax year), the annual capital gains tax exemption (£3,000 for the 2024/25 tax year) for the relevant tax year, and you’ll also be unable to claim for tax relief on FIG losses.

Another change that will be introduced as a result of the new non-dom rules is that offshore trusts will no longer be sheltered from UK taxes. This will mean that any FIG that arises from non-UK trusts will be subject to UK tax where the settlor is a UK resident. The tax liability will be charged at the settlor’s own personal marginal rates for income tax and capital gains. Relief will be available and limited to 4 years so long as the settlor is eligible under the new FIG regime explained above.

Finally, worldwide assets will become exposed to UK inheritance tax (IHT) sooner than before. Your domicile status will also no longer be a relevant factor when considering whether your estate should be subject to UK IHT. Instead, as long as it can be shown that you have been a UK tax resident for 10 out of the previous 20 UK tax years (previously this was at 15 out of the previous 20 UK tax years), then your estate will be subject to UK IHT rules. Not only that, but once you fall into the scope through the 10/20 year test, your worldwide assets remain open to UK IHT when leaving the UK for between 3 to 10 years depending on how long you have been a UK resident. 

How will we transition to the new non-dom tax regime?

If you’re concerned about how the upcoming changes will impact you, then you should pay particular attention to the transitional provision coming on 6 April 2025 as they are intended to provide some relief if you have been claiming the remittance basis in the past. The two main transitional rules include:

1. Rebasing for capital gains tax

If you hold foreign capital assets, you’ll have the option to reset the base value of the asset to its market value as of 5 April 2017 (referred to as rebasing). This potentially allows you to reduce capital gains tax on future disposals as tax is only calculated on the gains made from the 2017 value onwards. It is beneficial where you have held long term assets which have significantly appreciated up to 2017.

For example, you hold an overseas asset which you acquired in 2000 for £10,000. It grows in value over the years and in 2017, it was valued at £25,000. Should you choose to dispose of it in the future at an increased value of £50,000, your UK capital gains tax liability will only be calculated on the difference of £50,000 – £25,000 as opposed to £50,000 – £10,000.

There are conditions that you will need to meet in order to qualify for rebasing relief:

• You must not have been UK domiciled or deemed domiciled prior to 6 April 2025
• You must have claimed the remittance basis for at least one tax year between 2017/18 and 2024/25
• You must have held the asset as of 5 April 2017 and dispose of it on or after 6 April 2025
• Your asset must have been based outside the  UK between 6 March 2024 and 5 April 2025

2. Temporary Repatriation Facility (TRF)

Where you’ve previously claimed the remittance basis and have unremitted FIG arising before 6 April 2025, you’ll be able to access the new TRF. This will allow you to designate a specified amount of cash or specific asset that will be subject to the TRF charge (a reduced rate of tax than that you would ordinarily pay through the remittance basis). At the point in which you choose to remit your designated cash or assets into the UK, there will be no tax charged. The TRF will only be available for three years from 6 April 2025 and the charges are as follows:

• 15% for tax year 2027/28
• 12% for tax year 2025/26
• 12% for tax year 2026/27

You can choose to do this via your self-assessment tax return, however, take note that the TRF will not offer credit where any foreign taxes have already been paid on designated FIG. You may therefore be better off continuing to use the remittance basis in certain circumstances. To explain this, we can use the following example:

You made £200,000 overseas.

If say 25% foreign had been paid on this income, you brought the £200,000 into the UK and were also eligible to claim the remittance basis.  Where you can make Foreign Tax Credit Relief you will only pay UK tax on the difference between the foreign tax rate (25%) and your marginal rate of tax (40 or 45%).  Therefore, the additional tax due will likely be between 15% and 20%, as such a claim for TRF treatment beneficial.

However, say 50% foreign had been paid on this income, it is likely that your entire UK tax liability would be covered by the foreign tax under the remittance basis regime but if you opted to use the TRF regime a further 12% – 15 % tax charge would apply. 

Are there any other forms of tax reliefs available for non-doms?

Some existing forms of tax relief will continue to be available to non-doms:

1. Overseas Workday Relief (OWR)

OWR grants income tax relief to non-doms. Where your employment requires you to work outside  the UK, your earnings can remain exempt from UK income tax so long as your wages are paid into an overseas bank account and are not brought into the UK. The maximum that can be claimed is either 30% of the relevant employment income or £300,000 (whichever is less) and this must be elected through the self-assessment process as well. It is possible to claim both FIG and OWR (or one or the other) so long as you meet the qualifying conditions. Currently, OWR is only available to be claimed for up to 3 years but from 6 April 2025, it will increase to 4 years to align with the new GIF regime.

2. Business Investment Relief (BIR)

BIR allows non-doms who have been using the remittance basis to bring money into the UK tax-free so long as it is used to invest in qualifying companies. This tax relief has been available since 2012 and has no limit to the maximum amount that can be claimed; however, it is due to end come 6 April 2028 where it will no longer be possible to claim BIR on new investments.

Existing investments will continue to hold their BIR status until a chargeable event occurs (i.e. disposal of the asset). Under current rules, you’ll not be treated as remitting FIG into the UK so long as the original investment made is moved and kept outside of the UK within 90 days of the chargeable event. You may however wish to designate the BIR investment under the TRF which means that no further tax will be charged if you wish to keep investment in the UK.

Get help with your non-dom self-assessment tax return

Don’t let the new non-dom changes catch you out. Whether you’re newly coming into the UK and need to complete a self-assessment tax return for the first time, or you’ve previously been claiming the remittance basis tax treatment but are now unsure how to navigate the new regime, our team of expert accountants can help provide a strategic plan of action to ensure you never pay more tax than you need to. Use our online form to get in touch with us today.