In her Budget Day announcement, Chancellor Rachel Reeves has confirmed the Government’s plan to abolish the UK’s long-standing non-domicile (non-dom) tax regime, effective from April 2025.
Under these new rules, the distinction between UK residents with a “domicile” outside of the UK will be removed, marking a substantial shift toward a residency-based system.
The Office for Budget Responsibility (OBR) forecasts that this shift could generate £12.7 billion over the next five years, reshaping how foreign income is taxed.
For decades, the non-dom regime allowed UK residents with foreign domiciles to mitigate paying tax on overseas income, provided that income was not remitted to the UK.
This flexibility attracted high-net-worth individuals and entrepreneurs, positioning the UK as a tax-friendly environment for international wealth.
The Government’s proposed changes, however, would tax all UK residents on their worldwide income, regardless of domicile.
Arguments for ending the non-dom regime
Supporters of the reforms argue that abolishing the non-dom status is a step toward tax equity and transparency.
Critics of the current system have long maintained that the non-dom regime disproportionately benefits the wealthiest residents, creating tax inequalities by allowing some UK residents to avoid taxes on foreign income while domestic taxpayers bear the full brunt.
The Government’s move aims to close this perceived gap, ensuring that all residents contribute fairly.
Additionally, proponents believe the reforms could attract a wider base of international workers, who may view the new residence-based system as more transparent.
By moving toward a globally recognised residency model, the UK could also streamline tax administration, creating a more consistent system aligned with global tax standards.
Arguments against ending the non-dom regime
Critics of the move argue that scrapping the non-dom regime could damage the UK’s competitive edge in attracting global wealth and investment.
The non-dom status has historically drawn entrepreneurs, investors, and high-net-worth individuals to the UK, bringing substantial indirect economic benefits.
By taxing foreign income, critics warn the UK risks deterring these individuals, potentially driving them to more tax-friendly jurisdictions.
Furthermore, there are concerns about the administrative and compliance burden this will place on non-doms.
Transitioning to a residency-based system may lead to increased complexity for those with foreign assets, trusts, or businesses, adding significant compliance costs and requiring complex international tax planning.
Practical advice for non-doms preparing for the end of the regime
If you are a non-dom concerned about these changes, now is the time to take practical steps to understand the implications and seek advice.
Here are some key actions to consider:
- Review your global assets and income sources: The proposed system will require full disclosure of worldwide income. Consult with a tax adviser to understand how each income stream may be affected by the new regime and prepare for the potential reporting requirements.
- Explore the Temporary Repatriation Facility (TRF): If the Budget confirms a TRF with reduced tax rates for repatriated funds, consider how you might benefit. This facility may offer relief on certain assets brought into the UK, and optimising this period could reduce your tax exposure.
- Consider trusts and offshore structures: With new rules likely to affect foreign income and gains, review any offshore structures with a tax expert to understand potential impacts. The current lack of clarity around how trusts will be treated suggests this area will require careful planning.
- Plan for the remittance basis transition: As the remittance basis is phased out, the timing of income transfers may affect your liability. Seek guidance on when and how best to repatriate funds to maximise any available relief under the new system.
Tax reform of this scale is expected to come with consultations and further legislative changes so it might be worth staying abreast of any draft proposals, and ensure you have access to a knowledgeable tax adviser who can help you adapt to further developments as details emerge.
For many non-doms, these changes represent a profound shift, but with proactive planning and specialist advice, you can navigate the transition and optimise your position under the new regime.
For help with transitioning to a new form of taxation, please get in touch with our team.