Understanding the shift: Key insights for ‘non-doms’ on UK tax reforms

Understanding the shift: Key insights for ‘non-doms’ on UK tax reforms

As we approach significant changes to the UK tax landscape, it is crucial for non-domiciled individuals (non-doms) to understand the implications of the proposed reforms set to take effect on 6 April 2025. But first, what exactly is a non-dom?

A "non-dom" refers to a UK resident whose permanent home, or domicile, for tax purposes is outside the UK. This status is determined not by nationality or citizenship but by where an individual considers their long-term home. Non-doms currently pay UK tax only on income and gains earned within the UK, allowing them to avoid UK taxes on foreign income unless it is brought into the UK.

Key changes to non-dom tax status

From April 2025, the current remittance basis of taxation will be abolished. Non-doms will no longer be able to limit their UK tax liability to only income and gains that are brought into the UK. Instead, a new residence-based system will impose UK tax on worldwide income and gains for those who remain UK tax residents beyond a specified period.

Transitional provisions

To ease the impact of these changes, transitional provisions have been introduced. Non-doms currently claiming the remittance basis will be able to exempt 50% of their foreign income arising in the 2025/26 tax year. Additionally, any offshore wealth accumulated can be brought into the UK at a special rate of 12% during the 2025/26 and 2026/27 tax years. These provisions provide temporary relief that can help non-doms manage their tax liabilities during the transition.

Trust protections

The reforms will also remove existing protections for offshore trusts, meaning that non-doms will face increased taxation on offshore trust arrangements. This necessitates a thorough review of existing financial structures to mitigate potential tax liabilities and ensure compliance with the new regulations.

Implications for returning British expats

Importantly, the new rules will also apply to returning British expats who have been non-resident for at least ten years. This demographic must be aware of how these changes will affect their tax obligations upon returning to the UK, as they will be subject to the same rules as non-doms.

What this means for non-doms

The impact of these changes could be significant, with predictions suggesting that up to 60% of non-doms may consider leaving the UK due to the new tax liabilities. To navigate these changes effectively, we recommend the following steps:

• Review Your Tax Status: Assess your current tax position and understand how the new rules will affect you.
• Consider Your Options: Evaluate whether the transitional provisions apply to you and how you can benefit from them.
• Plan for Inheritance Tax: With potential changes to inheritance tax (IHT), consider revising your estate planning strategies to account for the new liabilities.
• Stay Informed: Keep abreast of any updates regarding the legislation and consult with tax professionals to ensure compliance.
• Engage with Financial Advisers: Seek advice from professionals who specialise in non-dom tax issues to develop tailored strategies that suit your circumstances.
• Consider Your Residency Plans: Weigh the benefits and drawbacks of emigration against the potential tax implications, especially if you are considering leaving the UK.

Get in touch 

As these changes loom, we encourage non-doms to reach out for personalised advice tailored to their unique circumstances.

For more information about navigating these changes and optimising your tax position, contact our Tax advisers on 01932 830664 or email us at enquiries@wardwilliams.co.uk for more information.