How will the arrival of the UK's new ruling party affect non-UK domiciliaries?
According to data from HMRC, the number of people applying for non-domiciled status in the UK has increased since the COVID-19 pandemic. In the 2022-23 fiscal year, approximately 74,000 people applied for non-domiciled status, up from 68,900 in the 2021-22 fiscal year.
In their inaugural speech, the new Labour government emphasised one of the main issues the UK is currently facing: a public sector funding shortage. To address this issue, Labour has pledged to abolish the UK’s non-domiciled tax status to raise more funds for the National Health Service (NHS) and other public service sectors.
Why would abolishing non-domiciled tax status help the government raise more funds? Today, Chan Neill Solicitors will explore the concept of non-domiciled status.
What is Non-Domiciled Status (Non-Dom)?
Non-domiciled status refers to the tax status of UK residents whose permanent residence or domicile is outside the UK.
A person’s tax status is not directly determined by their nationality or residency but can be influenced by these factors. Individuals with non-domiciled status only need to pay UK income tax on their UK-sourced income. They do not need to pay UK tax on their income from other parts of the world unless they deposit it into a UK bank account.
For UK individuals with significant overseas assets and who have moved abroad, having non-domiciled status can legally save them a considerable amount in taxes.
How Will the Non-Domiciled Rules Change?
In March 2024, then-Chancellor Jeremy Hunt of the Conservative Party announced plans to abolish the non-domiciled tax regime gradually. This means that UK citizens/residents who move abroad must also pay UK income tax on their overseas income.
Hunt plans that, from April 2025, individuals who move to the UK will not have to pay tax on their overseas income for the first four years, nor will they need to pay tax on distributions from non-resident trusts. These funds can be freely brought into the UK. However, during these four years, individuals will lose the right to personal and annual tax-free allowances for corporate income. After four years, these individuals must pay tax on their global income and gains according to normal UK resident tax rules.
Current non-domiciled individuals will have a two-year transition period. Until April 2027, they will receive a tax discount on overseas income, with only 50% of overseas income being taxed. From April 2027 onwards, the UK will tax all their overseas income.
After taking office, the Labour government revealed plans to uphold the April 2025 abolition of the non-domiciled regime but also announced intentions to strengthen these planned reforms.
Labour stated that in the first year of implementing the new rules, the 50% discount would be eliminated, and foreign assets held in trusts would be brought into the UK inheritance tax framework.
New Chancellor Rachel Reeves stated that Labour’s reforms could raise £2.6 billion for the government during the 2028/29 fiscal year.
How to Become a Non-UK Domiciled Individual?
There are two main conditions and methods for obtaining non-domiciled status:
- Birth Origin: You were born in a country outside the UK, or your father is from abroad.
- Domicile of Choice: You are at least 16 years old and choose to leave the UK and permanently reside in another country.
What Are the Current Rules for Non-UK Domiciled Status?
If you are a non-domiciled individual and choose not to pay UK tax on your overseas income, you must pay:
- £30,000 if you have lived in the UK for at least 7 out of the last nine tax years.
- £60,000 if you have lived in the UK for at least 12 out of the previous 14 tax years.
In 2017, the non-domiciled rules changed, meaning you can no longer apply for this status if you have lived in the UK for 15 out of the last 20 years or if you meet all the following conditions:
- You were born in the UK.
- Your domicile of origin is in the UK (i.e., your father is from the UK).
- You have lived in the UK for at least one year since 2017.
However, if your annual foreign income is less than £2,000 and you do not bring this money into the UK, you do not need to pay any tax on your overseas income.
If you are concerned about the impact of these reforms on your assets, we recommend consulting with professionals to strategically plan your assets and minimise the reform’s impact on you. Our professional legal team can help you plan your assets from various perspectives, including business, real estate, and immigration.
This article is provided for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact us using the contact form or email us on reception@cnsolicitors.com
