The Labour government has confirmed its intention to abolish the tax rules for non-UK domiciled individuals (non-doms), a pledge carried over from the previous administration. 

Here, we explore what non-domiciled status entails and how the upcoming changes may affect those impacted.

A ‘non-dom’ is an individual who is domiciled outside the UK. Domicile refers to the country that a person considers to be their permanent home, distinct from where they may reside for tax purposes.

A person acquires a domicile of origin at birth, typically from their father. If a parent’s domicile changes, the child’s domicile may also change—this is known as domicile of dependence. Once someone turns 16, they may acquire a domicile of choice by permanently settling in another country. In certain cases, an individual can be deemed domiciled in the UK for tax purposes, even if they are not officially domiciled there.

Domicile is different from tax residence, which is determined using the Statutory Residence Test. This test considers factors such as how many days an individual has spent in the UK and other connections to the country.

Everyone, whether UK domiciled or not, is subject to UK tax on their UK income and gains in the year they are received. For those who are UK domiciled and UK tax resident, this also applies to their foreign income and gains, a system referred to as the arising basis.

For non-doms who are UK residents, the taxation of foreign income and gains operates differently. Non-doms may choose to be taxed on the arising basis or opt for the remittance basis, where foreign income and gains are only taxed when the funds are brought into the UK. However, using the remittance basis comes at a cost: an annual charge of £30,000 applies after being UK resident for seven out of the previous nine tax years, rising to £60,000 after 12 out of the past 14 years.

Once someone has been UK resident for 15 of the past 20 years, they are treated as deemed domiciled and can no longer use the remittance basis. At that point, they are taxed on their worldwide income and gains.

Domicile also affects inheritance tax (IHT). UK domiciled individuals are liable to IHT on their global assets, while non-doms are only liable for IHT on assets based in the UK.

HMRC data shows that 74,000 individuals were non-domiciled for tax purposes in the tax year ending 5 April 2023, an increase of 7.4% from the previous year. However, the figure remains below pre-pandemic levels. Non-doms contributed an estimated £8.9 billion in tax revenue for 2022/23.

In the Spring Budget 2024, the Conservative government announced plans to abolish the non-dom tax regime from 6 April 2025. This would replace it with a new, “modern, simpler, and fairer” system for foreign income and gains. The reforms were expected to generate an additional £2.7 billion in revenue by 2028/29.

Abolishing the non-dom regime has been a long-standing policy of the Labour Party, which reaffirmed its commitment in the 2024 General Election. In July 2024, the Labour government confirmed it would proceed with these reforms while making adjustments to ensure that the new system is “fair and competitive.”

Further details of the new regime will be announced in the Budget on 30 October 2024.

For tailored advice on how these changes may affect you, get in touch with Angelo Chirulli at www.vectigalistax.co.uk or via email at angelo@vectigalistax.co.uk.