What is a Non-Dom?
"Non-Dom" (non-residents) are individuals resident in the UK, but who declare their domicile - understood as the center of their vital interests - outside the UK and therefore a favorable tax regime applies to them.
In that sense, until now a Non-Dom only paid tax in the UK on income earned within the country and did not have to pay tax on his income outside the country, until he deposits or there is a remittance of such money to a bank account in the UK.
Non-Doms choose their domiciles according to the criteria of origin (place of birth or of their father outside the UK) or of choice (being older than 16, having left the UK and living indefinitely in another country). According to HMRC, the number of Non-Doms in 2022 amounted to 68,800 people, mostly from Eastern Europe, India and the USA.
What is the new regime like?
From April 2025, those individuals moving to the UK who have not been resident there for a previous consecutive period of 10 years will have a full tax exemption for the first four years on all their foreign income and gains, which in turn can be remitted or brought back to the UK without an additional tax charge.
On the other hand, existing Non-Doms who have been resident in the UK for a period of less than 4 years will maintain the benefit until the completion of the 4th year. Likewise, there will be a 2-year transition period, during which they will be encouraged to incorporate their foreign assets into the UK system. The following measures will be implemented for this purpose:
- Non-Doms affected by the loss of access to remittance benefits in 2025-26 will see a 50% reduction in taxable foreign income.
- Restatement of capital assets to April 5, 2019 levels for disposals after April 6, 2025. Then, when a Non-Dom disposes of foreign assets, it may elect to be taxed only on capital gains realized from that date.
- Temporary Repatriation Facility, allowing repatriation to the UK of foreign income and gains before April 2025 at a reduced rate of 12% for the tax years 2025-26 and 206-27.
- In the case of Excluded Property Trusts incorporated prior to April 2025, income generated prior to that date will not be taxed, unless it benefits UK residents more than 4 years old. All income and gains after that date will be taxed to the Settlor.
With the implementation of this new tax scheme, regardless of where an individual is domiciled, and after the transition period mentioned above, any person who is tax resident in the UK for more than 4 years will pay UK tax on any foreign income, as is the case for all other UK residents.
The inheritance regime, which currently does not tax assets outside the UK - provided the Non-Dom has not been resident in the UK for 15 of the last 20 tax years - will also be moved from the domicile test to the residence test. The government has yet to consult on this and the details of this change are yet to be determined.
These reforms, although subject to possible adjustments, mark a new era with respect to the UK's tax attractiveness to high net worth individuals, even in the face of political changes at the next General Election. While critics are divided on their potential effects, it is understood that the 4-year period is not long enough to attract new high net worth residents and the transition period is not competitive with similar proposals in Europe.
If you are looking for additional information or to understand how this change could affect your personal situation, as well as to explore tax residency options in Europe with attractive regimes, please do not hesitate to contact us at [email protected].