In the Autumn 2024 Budget, Chancellor Rachel Reeves announced significant reforms aimed at non-domiciled (non-dom) individuals. These reforms are due to come into effect from 6 April 2025.
What is Non-Dom Status?
Non-dom status allows individuals who live in the UK but have their “domicile” – essentially their permanent home – abroad to benefit from certain tax advantages. Non-doms are typically exempt from paying UK tax on income and capital gains generated outside the country unless that income is brought into the UK, known as the remittance basis. The remittance basis charge applies to ‘long term’ UK residents but non-dom status can still result in significant tax savings.
The system has been in place for over two centuries and, while originally designed to attract foreign talent and investment to the UK, it has increasingly come under scrutiny in recent years.
Labour’s proposed reforms
With effect from 6 April 2025, the concept of using domicile is due to be abandoned and there will be a residence-based system for income tax, capital gains tax (CGT) and inheritance tax (IHT). The following measures are proposed:
- Inheritance tax – if an individual has been a UK resident for ten out of the previous twenty years they will be subject to IHT on their worldwide assets. They do not have to be ten consecutive years. An individual will remain in scope for between three and ten years after leaving the UK depending on the duration their residence.
- Inheritance tax – if the settlor of a trust is long term resident, then non-UK assets held within the trust will be within the scope of UK IHT.
- Income and capital gains tax – foreign income and capital gains can be treated as exempt from UK taxation for the first four tax years of UK residence provided you have not been UK resident in the previous ten years then. As with the current remittance basis there will be no personal allowance or CGT annual exemption. This rule will also apply to trusts.
- Overseas workday relief (OWR) – the current form of OWR will be revised – if eligible it will be possible to claim exemption, from UK taxation, of earnings from a UK employment that relate to overseas duties, in the first four years of residence. Unlike with the current system, the earnings can be remitted to the UK. There will be a new annual cap based on the lower of £300,000 or 30% of total employment earnings.
- Transitional provisions – for those already on the remittance basis who will start the arising basis in 2025/26 there will be no discount on the foreign income taxable – initially it was announced that there would be a 50% discount, but this has been scrapped.
- Transitional provisions – Rebasing of foreign assets – there will be a rebasing of foreign assets for CGT to 5 April 2017.
- Transitional provisions – remittance of overseas income and gains that arose before the 2025/26 tax year will be taxable at 12% for 2025/26 and 2026/27 and then at 15% in 2027/28.
Next steps
Please review your tax affairs and if you think you will affected by any of the above changes and would like to speak with one of our specialist tax advisers, please contact our Tax Team at Ellacotts on 01295 250401 or email solutions@ellacotts.co.uk.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
