Changes in Non-Domiciled Taxation

The 2024 Autumn Budget has introduced significant changes to the taxation of non-UK domiciled individuals, commonly known as ‘non-doms.’ These reforms aim to modernise and simplify the tax system, making it fairer and more competitive. Here is a summary of the key changes:

The most notable change is the abolition of the existing ‘non-dom’ regime. This regime allows individuals who are not domiciled in the UK to benefit from favourable UK tax treatment on their foreign income and gains. With effect from 6 April 2025, the concept of domicile will no longer be relevant from a UK tax perspective.

In place of the current domicile-based system, a new residence-based regime will be introduced. This system will determine UK tax liabilities based on an individual’s tax residency status rather than their domicile status. Key features of this new regime include:

• Four-Year Foreign Income and Gains (FIG) Regime: New arrivals who have not been UK tax resident in the previous ten years will be subject to a four-year regime for foreign income and gains.
• Temporary Repatriation Facility (TRF): Individuals previously taxed on the remittance basis can remit pre 6 April 2025 foreign income and gains using this new facility.
• Reform of Overseas Workday Relief (OWR): Changes will be made to Overseas Workday Relief, which previously allowed non-doms to exclude income attributable to overseas workdays from UK tax.

The inheritance tax system will also see a shift from a domicile-based regime to a residence-based system. This means that inheritance tax liabilities will be determined by an individual’s residence status rather than by their domicile.

Currently, UK-domiciled individuals are subject to UK IHT on their worldwide assets. Non-UK domiciled individuals are currently only subject to UK IHT on any UK situs assets.

These changes are expected to have a significant impact on non-doms who have traditionally benefited from the favourable tax treatments available under the current regime. The new residency-based system aims to create a level playing field, ensuring that all UK residents are taxed in a more equitable way.

The government has stated that these reforms are part of a broader effort to modernise the UK tax system, making it simpler and fairer. By moving to a residence-based system, the government aims to reduce complexity and improve compliance.

The 2024 Autumn Budget marks a significant shift in the taxation of non-domiciled individuals in the UK. With the abolition of the concept of domicile and the introduction of a residence-based system, the government aims to create a fairer and more competitive tax environment. These changes, however, will undoubtedly have far reaching implications for non-doms and their tax planning strategies.

If you have any questions or need further details on how these changes might affect you, please do get in touch with our expert team.