March 6th 2024 saw the delivery of the 2024 Spring Budget by Chancellor Jeremy Hunt, who outlined a significant change to the current non-domicile tax status in the UK.
As of 6th April 2025, the non-domicile – or non-dom as it’s affectionately known – tax status will be scrapped and replaced with new rules for those whose permanent home is overseas.
There will be a transitional period where the current rules will be phased out over 2 years, to allow for a softer transition.
Here we take an in-depth look at how the rules are changing.
What is non-dom status?
The non-dom tax regime has formed part of the UK’s tax system in varying capacities since 1799.
Non-dom status can be granted to UK residents whose permanent home remains outside of the UK, allowing them to benefit from the remittance basis which exempts their foreign income and gains (FIG) from UK taxation.
A non-dom is only required to pay tax on money earned in the UK. Any money made outside of the UK is only required to be taxed by the UK government if the money is paid into a UK bank account.
What are the current non-dom rules?
The current rules if you’re non-domiciled means you are not required to pay UK tax on your foreign income or gains if said income is less than £2,000 in the tax year and the money is not transferred into a UK bank account.
If your foreign income exceeds £2,000, you must report foreign income or gains, or any money brought into the UK.
This can be done in two ways. You can either pay UK tax on your earnings or claim the ‘remittance basis’, meaning you only pay UK tax for any income brought into the UK.
If you claim the remittance basis, you lose tax-free allowances for income tax and capital gains tax and must pay an annual charge if you have been a UK resident for a certain period:
If you have been a resident for at least 7 years of the previous 9 tax years the annual charge is £30,000.
If you have been a resident for at least 12 of the previous 14 tax years, the annual charge is £60,000.
The remittance basis is a complicated process which requires help from professional tax advisors and accountants to ensure compliance. Many financial professionals welcome a simpler system for those eligible for the non-dom status.
How are the non-dom rules changing?
As laid out by Chancellor Jeremy Hunt in the 2024 Spring Budget, the non-dom tax regime will be scrapped, being replaced by a new four-year FIG regime.
As of April 2025, those who move to the UK, or return after at least 10 years overseas, will not be required to pay tax on any earnings made outside of the UK for the first four years. However, after that time, they will be subject to the same tax as all UK residents should they continue to live in the UK.
Individuals who currently claim remittance basis in the UK and have been in the UK for less than 4 tax years are also eligible for the new FIG regime for the remainder of the first four years of UK residence.
Those who have already resided in the UK for 4 or more tax years as of April 2025 will be subject to UK taxation on their income no matter where in the world it is earned.
Transitional measures for current non-doms
Due to the stark changes from the current to the incoming FIG regime, the chancellor announced a transitional period with a number of alleviations to make the process smoother for those affected.
Reduced rates subject to tax
For the 2025/26 tax year, those who were previously claiming the remittance basis moving to the arising basis and who are ineligible for the new 4-year FIG regime will be subject to a reduced rate of tax for one year.
For the individuals described above, only 50% of their foreign income in the 2025/26 tax year will be subject to tax. This will only apply for one tax year and is not applicable to foreign chargeable gains.
Capital Gains Tax Rebasing
Individuals who previously claimed the remittance basis and are neither UK domiciled nor deemed domiciled by April 2025 are able to dispose of personally held foreign assets, which they can elect to rebase to its 5th April 2019 value.
The government has explained that rebasing will be subject to a number of conditions, which have not yet been outlined. This relief is only relevant to non-UK situs assets held personally, not those within non-UK resident trusts.
Temporary Repatriation Facility (TRF)
Those who previously claimed the remittance basis will be able to bring income and gains to the UK earned previously to April 2025 during the 2025/26 and 2026/27 tax years at a reduced tax rate of 12%. This is under the Temporary Repatriation Facility, which will not apply to foreign income and gains earned within trusts.
Trust Protections for non-doms
As of April 2025, tax protections on income and gains earned within “settlor-interested” trust structure will not be available for non-domiciled and deemed domiciled individuals who do not qualify for the new FIG regime.
Any foreign income and gains arising in the trust as of April 2025 will be taxed the same as UK domiciles, unless eligible for the new FIG regime.
Inheritance Tax
The chancellor confirmed the government’s plans to move the Inheritance Tax (IHT) to a residence-based scheme during the Spring Budget announcement.
The IHT provisions are subject to government consultation which are likely to apply from 6 April 2025.
The new IHT scheme proposes individuals will be subject to UK IHT on their worldwide assets once they have been a UK resident for 10 tax years. The new scheme also proposes that once an individual meets the above residence terms, they fall within the scope of UK IHT unless they become and remain a non-UK tax resident for a period of 10 years.
Further details concerning IHT will be settled after consultation.
How do I prepare for non-dom being scrapped?
This announcement is one of the biggest changes to how non-UK domiciled individuals are taxed in the UK. More details will be released in advance of April 2025 to allow ample opportunity for those involved to make the necessary preparations.
With a general election looming within the UK, there is a chance further changes may be implemented, especially if a new government comes into power. In the meantime, however, proper planning and preparation are paramount, and we at Shenward recommend consulting early with tax advisors to ensure proper adjustments and considerations are made to your non-UK earnings well in advance of April 2025.
