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Non-Dom status to end in the UK – what does this mean?

The UK has offered a tax status known as non-domiciled (non-dom), which allowed residents whose permanent home, or domicile, is outside the UK to enjoy a favourable tax regime. This status enabled them to pay tax on foreign income only if it was brought into the UK, providing significant tax advantages for those with substantial overseas income or gains. It also offered protections against UK inheritance tax (IHT) on assets located outside the UK.

How will the upcoming changes affect individuals with non-dom status?

As of 6th April 2025, the UK will implement a new set of rules for taxing non-domiciled residents. This transition signifies a move away from the remittance basis to a residence-based test, fundamentally changing the taxation of foreign income and gains for those residing in the UK but with a domicile elsewhere.

What are the key aspects of the new regime?

The rollout of a new system for taxing foreign income and gains (FIG) will mark a significant shift. For the first four years from 6th April 2025, or from the first tax year of UK residency if later, individuals who have not been UK residents for at least ten of the previous tax years can access a special regime. This regime exempts their foreign income and gains from UK tax, provided these are not brought into the UK, albeit at the cost of forfeiting certain tax allowances and exemptions.

What transitional measures have been put in place?

Transitional measures have been designed for current non-doms to facilitate a smoother transition. For the tax year 2025–26, these individuals will be taxed on only 50% of their foreign income, providing initial relief.

As well as this, a reduced tax rate of 12% will be applied to remittances made before 6th April 2025, personal foreign income, and gains for the tax years 2025/26 and 2026/27. This does not extend to foreign income generated within offshore trust structures.

How will this affect Inheritance Tax?

The impending changes also encompass inheritance tax (IHT), with a change from a domicile-based to a residence-based system planned. This adjustment aims to more closely align the tax treatment of assets with an individual’s residency status, thereby affecting the taxation of non-doms’ assets post-death.

What are the implications for employers and international workforces?

Employers with internationally mobile employees are advised to revisit their tax planning and compliance strategies in anticipation of these changes. The new rules could impact the taxation and reporting of employee earnings, necessitating adjustments to internal policies and potentially affecting the tax liabilities of both employers and employees.

For expert advice on adapting to the UK’s tax changes, reach out to us now and ensure your finances are managed correctly.

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