“Non-doms”: a basic guide to the changes

Insight

13.11.2024

What is a “non-dom” and why does it matter?

This is someone who is not “domiciled” anywhere in the UK. “Domicile” here is a particular English law concept about identifying a jurisdiction which is someone’s permanent, long-term home.

If someone is “domiciled” somewhere outside the UK, currently their UK tax exposure is limited:

They can opt to be taxed by the “Remittance Basis” of taxation which is available for (broadly) 15 years. For this period, only UK assets and earnings are subject to UK income tax and capital gains tax (CGT), and non-UK assets are not taxed unless they are brought into, or “remitted”, to the UK. With planning, non-doms have been able to live in the UK for a number of years in a very tax-efficient way.
UK inheritance tax (IHT) is limited to UK based assets unless a non-dom (i) becomes UK domiciled by forming an intention to remain in the UK permanently or indefinitely, or (ii) is deemed to be UK domiciled by being UK tax resident in 15 out of the previous 20 UK tax years. UK domiciled or deemed domiciled individuals are exposed to IHT on their worldwide assets.

When will this change and how will people be impacted?

The new rules will take effect from 6 April 2025. From this date:

The Remittance Basis will be removed: This will be replaced by a new 4-year regime, where individuals arriving in the UK (after being non-resident for at least 10 prior tax years) will not be taxed on foreign income and gains (“FIGs” for short) regardless of whether they are brought to the UK or not. Some temporary measures will apply to people who have previously claimed the Remittance Basis but will no longer be eligible under the new rules.
The way non-UK assets in trusts are subject to UK tax will change: UK resident settlors of non-UK trusts will lose sheltering of UK tax on FIGs arising within such trusts if they do not benefit from the 4-year FIG regime. Instead, FIGs within non-UK trusts will be attributed to the UK resident settlor who will be liable for UK tax on them at their marginal rates.
There will be exposure to inheritance tax on worldwide assets sooner: A person’s “domicile” will be irrelevant for IHT, and instead, only the number of years a person has been UK tax resident will matter. IHT will be due on a person’s worldwide assets on their death if they have been UK tax resident for 10 out of the previous 20 UK tax years: a much easier test to fall into compared with the current 15/20 year test.

Additionally, once a person falls within the 10/20 year test, they will remain within the scope of IHT on worldwide assets for a certain number of years after leaving the UK (this is referred to as a “tail” for IHT). This “tail” will be between 3 years and 10 years depending on the length of time the person was previously resident in the UK.

One of the biggest changes is the loss of so-called “excluded property trust” planning (whereby a non-dom could create a non-UK trust with non-UK assets and shelter those assets from IHT indefinitely); under the new rules, any trust that has a long-term UK resident settlor will be exposed to IHT, with the potential for double charging (by the UK) for any trust created after 29 October 2024 with no set off. For more details, click here.

Is there anything those affected can do about this?

Yes, with a clear indication of what the rules will look like from April, individuals can now plan with greater certainty. For some, specific planning can be implemented before 6 April 2025, such as restructuring investments, making best use of the last year of the existing regime and considering excluding settlors from trusts or creating settlor-excluded trusts. For others, the tax impact could be managed by limiting UK days to be non-UK tax resident, checking if there is relief from double tax treaties and making use of the new “Temporary Repatriation Facility” for those who have used the Remittance Basis. Given the complexity of the landscape, it is important to seek specialist advice in each case about what specific options are available.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.