What is The Meaning of "Non-Dom" and What Changes are Being Made to The Rules?
How are the non-dom rules changing?
Under Mr. Hunt's plans, individuals who move to the UK from April 2025 will not be required to pay tax on foreign earnings for the first four years. After this period, if they continue to reside in the UK, they will be subject to the same tax rates as other residents.Those who currently hold non-dom status will be granted a two-year transition period, during which they will be encouraged to bring their foreign wealth into the UK tax system.
In her first Budget as Chancellor, Rachel Reeves made a landmark announcement: the UK government will abolish the controversial non-domiciled (non-dom) tax status, a move set to reshape the UK’s tax system. This significant reform will impact individuals living in the UK under various visa categories, including those on the Innovator Founder visa, Skilled Worker visa, and Global Talent visa.
On 30 October 2024, Chancellor Rachel Reeves stood outside Number 11 Downing Street, red box in hand, ready to deliver her first Budget. Among the key announcements was the government's decision to abolish the controversial non-domiciled (non-dom) tax status, a move that will have significant implications for the UK’s tax system.
This bold reform had been the subject of much speculation in recent weeks, with concerns raised over whether the proposed changes would generate the expected revenue. Despite initial doubts, the Chancellor made it clear that the abolition of non-dom status would help address tax inequalities, while raising billions in the process.
What is a Non-Dom?
The term "non-dom" refers to a UK resident whose permanent home (or domicile) for tax purposes is considered to be outside the UK. It is important to note that non-dom status has no relation to an individual's nationality or citizenship. Instead, it pertains solely to their tax residence status and whether their "domicile" (the country they consider their permanent home) is outside the UK.
Non-doms are only required to pay UK tax on their UK earnings. Crucially, they do not pay UK tax on income or assets held outside the UK, unless that money is brought into the country. For wealthy individuals, this status provides an opportunity for substantial tax savings, provided they declare a lower-tax jurisdiction as their country of domicile. This has been widely criticised, with many arguing that it allows the rich to avoid paying their fair share of taxes in the UK.
A well-known example of a high-profile non-dom is Akshata Murty, wife of former Prime Minister Rishi Sunak. Following media scrutiny over her non-dom status, she announced that she would begin paying UK taxes on her overseas earnings.
How Will the Non-Dom Rules Change?
Labour had already pledged to tackle non-dom status during the run-up to the 2024 general election, vowing to toughen existing Conservative plans to abolish the system. In March 2024, the then-Conservative Chancellor Jeremy Hunt had announced a gradual phasing out of non-dom status. Under his proposal, people moving to the UK from April 2025 would not be required to pay tax on foreign earnings for the first four years. After that, they would be taxed like other UK residents.
However, Rachel Reeves' Budget has gone further, confirming that the non-dom status will be fully abolished from April 2025. In place of the existing regime, the government will introduce a residence-based tax system. This means that from 2025, individuals living in the UK for an extended period will be taxed on their global income, regardless of their domicile status.
Additionally, the government will extend the transition period for current non-doms from two years to three, encouraging them to bring their foreign wealth into the UK tax system. The new rules will also bring foreign earnings into the inheritance tax system.
The Chancellor's office has stated that the package of measures is expected to raise £12.7 billion over the next five years, a significant boost to the UK’s tax revenue.
How Do You Become a Non-Dom?
There are two primary ways to qualify for non-dom status in the UK:
Current Non-Dom Rules
At present, individuals with non-dom status must pay an annual charge to the UK government if they choose not to pay UK tax on their foreign income. The fees are based on how long they have lived in the UK:
How Many Non-Doms Are There?
According to the latest figures from HM Revenue & Customs (HMRC), approximately 74,000 people held non-dom status in 2022-23, an increase from 68,900 in the previous year. The rise in non-doms follows the Covid pandemic, as more individuals sought to take advantage of the tax advantages that non-dom status offers.
A closer look at the data reveals that the majority of non-doms were born abroad, with the highest numbers coming from Western Europe, India, and the United States. Since 2001, there has also been a notable rise in non-doms from China and former Soviet states.
Additionally, non-doms are heavily concentrated in affluent areas of London, including Westminster, Kensington, and the City of London, where more than 10% of adults have held non-dom status at some point.
Conclusion
The abolition of non-dom status marks a significant shift in UK tax policy, reflecting the government’s aim to make the tax system fairer and more transparent. By phasing out this controversial status and bringing foreign income into the UK tax system, Chancellor Rachel Reeves hopes to address growing concerns about tax avoidance among the wealthy.
While the changes will likely have a significant financial impact on some of the UK’s wealthiest individuals, they also represent an important step towards tackling inequality in the country’s tax code. With the non-dom system set to end in 2025, the full impact of these reforms will soon be clear.
On 30 October 2024, Chancellor Rachel Reeves stood outside Number 11 Downing Street, red box in hand, ready to deliver her first Budget. Among the key announcements was the government's decision to abolish the controversial non-domiciled (non-dom) tax status, a move that will have significant implications for the UK’s tax system.
This bold reform had been the subject of much speculation in recent weeks, with concerns raised over whether the proposed changes would generate the expected revenue. Despite initial doubts, the Chancellor made it clear that the abolition of non-dom status would help address tax inequalities, while raising billions in the process.
What is a Non-Dom?
The term "non-dom" refers to a UK resident whose permanent home (or domicile) for tax purposes is considered to be outside the UK. It is important to note that non-dom status has no relation to an individual's nationality or citizenship. Instead, it pertains solely to their tax residence status and whether their "domicile" (the country they consider their permanent home) is outside the UK.
Non-doms are only required to pay UK tax on their UK earnings. Crucially, they do not pay UK tax on income or assets held outside the UK, unless that money is brought into the country. For wealthy individuals, this status provides an opportunity for substantial tax savings, provided they declare a lower-tax jurisdiction as their country of domicile. This has been widely criticised, with many arguing that it allows the rich to avoid paying their fair share of taxes in the UK.
A well-known example of a high-profile non-dom is Akshata Murty, wife of former Prime Minister Rishi Sunak. Following media scrutiny over her non-dom status, she announced that she would begin paying UK taxes on her overseas earnings.
How Will the Non-Dom Rules Change?
Labour had already pledged to tackle non-dom status during the run-up to the 2024 general election, vowing to toughen existing Conservative plans to abolish the system. In March 2024, the then-Conservative Chancellor Jeremy Hunt had announced a gradual phasing out of non-dom status. Under his proposal, people moving to the UK from April 2025 would not be required to pay tax on foreign earnings for the first four years. After that, they would be taxed like other UK residents.
However, Rachel Reeves' Budget has gone further, confirming that the non-dom status will be fully abolished from April 2025. In place of the existing regime, the government will introduce a residence-based tax system. This means that from 2025, individuals living in the UK for an extended period will be taxed on their global income, regardless of their domicile status.
Additionally, the government will extend the transition period for current non-doms from two years to three, encouraging them to bring their foreign wealth into the UK tax system. The new rules will also bring foreign earnings into the inheritance tax system.
The Chancellor's office has stated that the package of measures is expected to raise £12.7 billion over the next five years, a significant boost to the UK’s tax revenue.
How Do You Become a Non-Dom?
There are two primary ways to qualify for non-dom status in the UK:
- Domicile of origin – If you were born in a foreign country or if your father was born outside the UK, you can claim non-dom status.
- Domicile of choice – If you are over the age of 16 and decide to live indefinitely in another country, you can declare yourself a non-dom.
Current Non-Dom Rules
At present, individuals with non-dom status must pay an annual charge to the UK government if they choose not to pay UK tax on their foreign income. The fees are based on how long they have lived in the UK:
- £30,000 if they have been UK residents for at least 7 of the previous 9 years.
- £60,000 if they have been residents for at least 12 of the previous 14 years.
How Many Non-Doms Are There?
According to the latest figures from HM Revenue & Customs (HMRC), approximately 74,000 people held non-dom status in 2022-23, an increase from 68,900 in the previous year. The rise in non-doms follows the Covid pandemic, as more individuals sought to take advantage of the tax advantages that non-dom status offers.
A closer look at the data reveals that the majority of non-doms were born abroad, with the highest numbers coming from Western Europe, India, and the United States. Since 2001, there has also been a notable rise in non-doms from China and former Soviet states.
Additionally, non-doms are heavily concentrated in affluent areas of London, including Westminster, Kensington, and the City of London, where more than 10% of adults have held non-dom status at some point.
Conclusion
The abolition of non-dom status marks a significant shift in UK tax policy, reflecting the government’s aim to make the tax system fairer and more transparent. By phasing out this controversial status and bringing foreign income into the UK tax system, Chancellor Rachel Reeves hopes to address growing concerns about tax avoidance among the wealthy.
While the changes will likely have a significant financial impact on some of the UK’s wealthiest individuals, they also represent an important step towards tackling inequality in the country’s tax code. With the non-dom system set to end in 2025, the full impact of these reforms will soon be clear.
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