Changes to Non-Dom Tax Status in UK 2025

Starting in April 2025, the UK will tighten rules on non-doms with changes to the remittance basis of taxation (which allows non-doms to avoid paying UK tax on foreign income and capital gains). Individuals who have been UK residents for over 10 years will face more stringent tax obligations, as they will no longer be able to limit their taxes solely to income brought into the UK. This could lead to higher tax bills for long-term non-doms.s.

What Will Change for Non-Doms?

For many non-doms, the newly proposed system will eliminate the ability to claim exemptions on foreign income or assets once they’ve been a UK resident for over 10 years. For others, a "grace period" of four years allows for some continued tax relief, though many could find themselves paying increased taxes within a relatively short time frame.

Additionally, new proposals affect non-dom individuals who have already spent extended periods in the UK. These long-term residents might now face full taxation on foreign earnings if they continue to claim non-dom status. And while some tax breaks may be offered on repatriating funds, these may be less generous compared to the current non-dom benefits.

Why These Changes Matter?

This reform impacts people who have used non-dom status to manage their tax liabilities effectively, particularly those with foreign assets or earnings. The impact of the tax hike is particularly notable in fields such as property investment.

The tax changes could lead many non-doms, especially property investors, to move their assets back to the UK before the new rules are enforced. Some may realise that the benefits of maintaining non-dom status no longer outweigh the added tax costs. As a result, tax-exempt living arrangements in the UK will become less advantageous for foreign nationals with ties to other countries.

Imagine a non-dom who has investments in UK properties and foreign assets. Under the current system, they don't pay UK tax on income earned from these foreign assets. However, with the new tax rules coming in 2025, they’ll be taxed on foreign income if they’ve lived in the UK for 10 years. Realising this, they decide to move their foreign assets to the UK before the changes take place, in order to reduce potential tax costs. This move is called asset repatriation.

Preparing for the Change

With the 2025 deadline coming fast, non-domiciled individuals and families should start reviewing their financial plans in light of these impending changes, it’s vital to begin consulting with tax professionals to understand how the reform will directly affect your situation.

• What Can You Do Now?

  • Plan for Tax Exposure: As the transition from a remittance-based tax system becomes less beneficial, begin assessing how much tax you could owe if the new rules come into force.

  • Asset Reallocation: For high net worth individuals, changing how assets are held or possibly relocating could make a considerable difference as these changes come into effect.

  • Consider Consulting with an Advisor: Getting professional advice can help structure your affairs ahead of the implementation and avoid unpleasant surprises once the new system is active.

While the changes to non-dom status will mostly impact foreign investors or individuals with extensive overseas assets, it’s crucial for affected individuals to start taking action now. If you’ve been a non-dom in the UK for many years, this tax change may make UK residency less attractive for managing your wealth. Keep an eye on your portfolio, discuss strategy with an advisor, and be prepared for a possible shift in your finances due to these reforms coming in April 2025.