Abolishing 'non-dom' status - what you need to know

What you need to know

It is arguably the biggest change to UK personal tax in 200 years. In March 2024 Chancellor Jeremy Hunt announced the abolition, with effect from 6 April 2025, of the ‘non-dom’ regime and its replacement with a tax system based purely on residence.

In this note, we review the proposed changes and consider their impact on those who are, or will become, tax resident in the UK. There will be ‘winners’ and ‘losers’ under the new regime, but many will need to consider its impact on their position.

Rothschild & Co does not provide tax advice, but we work alongside a trusted network of lawyers, tax adviser and trustees to help our clients navigate tax changes.

As explained below, the new regime will make it more important than ever for taxpayers to ensure their investment advisers and tax advisers are closely aligned. At Rothschild & Co our Client Advisers have regular training and updates on the proposed changes so you can be confident they are well placed to help you and to work alongside your wider advisory team.

How are rules changing for non-doms?

The existing regime (which continues until April 2025) allows those who are resident but not domiciled or deemed domiciled in the UK to avoid tax on their offshore income and gains until they remit the funds to the UK. This is known as the ‘remittance basis’ of taxation. The remittance basis is to be abolished and the new regime is to be based not on domicile but on residence, with an individual’s residence status being determined by the rules in the statutory residence test.

If an individual has not been resident in the UK for at least the prior 10 years, then their first four years of residence will benefit from what has been named the ‘FIG’ regime, standing for ‘foreign income and gains’. During the first four years an individual can elect that they do not pay tax on their non-UK source income and gains, and can also remit those funds to the UK without triggering a tax charge.

After four years (or for those who have been resident already for four years), an individual will be taxed on their worldwide income and gains – there will be no special treatment.

To help individuals acclimatise to the new regime, there are a number of proposed measures intended to soften the withdrawal of the remittance basis.

• Individuals who held offshore assets on 5 April 2019 and are non-domiciled or deemed domiciled on 5 April 2025 can elect to rebase the value of such assets to the 2019 date for capital gains tax (CGT) purposes. Nobody seems clear as to why the Government chose a date in 2019 for these purposes and, at present, we do not know of the conditions which will apply to this rebasing.
• Individuals who cannot benefit from the FIG regime but who previously used the remittance basis will pay income tax on only 50% of their foreign income in 2025-2026. This relief will not be available in respect of offshore capital gains. Labour have indicated that, if elected, they would not introduce this provision.
• Many non-doms have accumulated significant sums offshore, on which they will pay tax if the monies are remitted to the UK. In what might be regarded as a generous relief, an individual who has historically been taxed on the remittance basis can remit such monies to the UK in either or both of the tax years 2025-2026 and 2026-2027 at a new 12% rate of tax. Funds brought to the UK outside this window will be subject to tax at the individual’s normal tax rates.

The new regime and reliefs will doubtless have a deep impact on investment behaviour and investment strategy.

A new regime for inheritance tax

The Government has also proposed changes to the inheritance tax (IHT) regime for non-doms. At present, an individual who is not domiciled in the UK for IHT purposes, does not pay IHT on their non-UK assets.

Moreover, if they place the non-UK assets in a trust before they become IHT domiciled, the assets remain permanently outside the scope of IHT. It appears that this opportunity will remain open until 6 April 2025. Those who are resident but not IHT domiciled in the UK should consider placing their assets in a trust before 5 April 2025, although note that Labour have indicated that they will amend this proposal.

The Government is in consultation on the proposed changes to IHT, but the proposal is that there will, from 6 April 2025, be a 10 year IHT ‘tail’. Individuals who have been resident in the UK for 10 years will be subject to IHT on their worldwide estates and they will remain within the charge to IHT for 10 years after ceasing to be resident in the UK. Assets situated in the UK will always remain within the charge to IHT.

Changes to offshore trusts

The Government has also proposed changes to the tax treatment of offshore trusts created by non-doms. At present, these can be personal tax havens. Capital gains and offshore income can be received by the trustees tax free, even if the non-dom is a beneficiary of the trust, provided the trust was created before the person who created it became domiciled or deemed domiciled in the UK.

From 6 April 2025, this protection will be lost and the settlor will be taxed on the income and gains as they arise. The only exception will be for those who are within the FIG regime on the basis they have not yet been resident in the UK for four years. Non-doms should review the position of any trusts they have created.

Will these changes arrive?

At present, we only have a broad overview of the proposals and the draft legislation may not arrive for some time. In addition, there is the uncertainty arising from the forthcoming general election.

One can envisage that the proposed rules may be modified (perhaps by a lengthening of the four-year FIC period) or postponed (perhaps with the start date moved beyond April 2025), but it seems certain that we will get a new regime and that it is likely to look something like the proposed new rules.

What should non-doms do now?

It has become a cliché, but ‘keep calm and carry on’ would appear to be the key message. There is no need for action today. However, it would be prudent for non-doms to undertake some or all of the following steps so that they are well placed to move quickly once we have more details on the new rules.

Verify your status with your adviser to determine exactly how long you have been resident in the UK and how the new rules will apply to you. Should you be claiming the remittance basis before 6 April 2025 so as to be able to benefit from reliefs?

Look closely at the profile of your investments and how the proposed reliefs will apply to you.

The new regime will not be restricted to the traditional non-dom (someone whose homeland was outside the UK). Those born in the UK and who have been non-resident for 10 or more years will be able to benefit from the FIG regime and IHT planning will be more certain for those moving offshore.

It seems certain, given its status as a political football, that the non-dom regime will be subject to significant change. Non-doms should be reviewing their position now and forming a strategy for the future.

^{Past performance is not a guide to future performance and nothing in this article constitutes advice. Although the information and data herein are obtained from sources believed to be reliable, no representation or warranty, expressed or implied, is or will be made and, save in the case of fraud, no responsibility or liability is or will be accepted by Rothschild & Co Wealth Management UK Limited as to or in relation to the fairness, accuracy or completeness of this document or the information forming the basis of this document or for any reliance placed on this document by any person whatsoever. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, targets, estimates or forecasts contained in this document. Furthermore, all opinions and data used in this document are subject to change without prior notice.}