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Telegraph Money outlines everything you need to know as large-scale reform looms
The terms “non-dom” is short for non-domiciled, and in Britain relates to someone who lives in the UK, but whose permanent residence for tax purposes is registered abroad.
The status can come with significant tax breaks – but it’s all set to change as Labour is intending to remove domicile status from the UK tax system from April 2025 as part of its public spending audit.
Here, Telegraph Money explains what the non-dom tax rules are currently, what’s due to change, and how you might be affected. This guide will cover:
A “non-dom” is a UK citizen whose permanent residence is registered abroad.
They only have to pay UK tax on the money they earn here in the UK – so they aren’t taxed on earnings made overseas, which in many cases will be substantial.
The special tax treatment is not available to ordinary UK taxpayers, even though the non-doms may spend most of their time in the UK and have lived here for several years.
Non-doms have long been a source of contention because while the generous tax breaks are entirely legal they predominantly benefit wealthy foreigners.
One in five bankers were reported to be non-doms in 2022, according to the London School of Economics, and four in 10 individuals who earned £5m or more in 2018 had claimed non-dom status at some point.
However, supporters of the regime argue that non-doms should be allowed to retain the tax relief, as having these wealthy individuals in Britain comes with benefits.
If the Government abolishes the regime it could cost the UK £6.5bn by 2035, and 23,000 jobs by 2030, according to the Adam Smith Institute. This would be due to lower investment, a drop in tax revenue, reduced consumption, and a resulting loss of jobs.
Non-doms can make significant tax savings, as they do not have to cough up income tax or capital gains tax on investments and other assets held overseas.
They also benefit significantly from potential inheritance tax savings (IHT). While a normal UK resident’s worldwide estate is subject to 40pc taxation after £325,000 (plus an extra allowance for family homes), a non-dom is only taxed on their UK assets, so their assets held abroad are immune to the UK’s hefty death duties.
Non-doms must pay UK tax on foreign income and foreign gains if and when they are brought (or remitted) to UK accounts.
Rishi Sunak’s wife, Akshata Murty, was criticised after it emerged she had held non-domiciled tax status as an Indian citizen.
It meant she had not paid UK tax on overseas income, including dividends on her shareholding in the IT giant Infosys. Ms Murty has since voluntarily decided to pay tax in the UK on her worldwide income.
A non-dom must demonstrate to HM Revenue and Customs that their domicile (permanent home) is in another country.
Your domicile is usually the country your father considered his permanent home when you were born, so it’s not necessarily related to your nationality or country of birth. This has led to the situation of somebody living in the UK for virtually their entire life but maintaining an overseas domicile as their father lived abroad when they were born.
If you were born in the UK, you are likely to start off with a UK domicile and losing it is difficult.
However, it may be possible, particularly where people retire to another country with no intention of returning to the UK. The law surrounding this area is complex, so if you’re planning on trying to gauge whether your overseas move can open the door to non-dom status, it’s best to speak to a regulated financial adviser.
While non-doms can currently reap the rewards of special tax treatment, the benefits are not forever immune to UK taxation. Essentially, the perks begin to be eroded after seven years, before disappearing entirely after 15 years.
Non-doms have to pay a £30,000 annual “remittance charge” after being resident in the UK for seven of the previous nine tax years. This rises to £60,000 after being resident for 12 of the past 14 tax years.
In 2017 the rules were changed, so that someone who has lived in the UK for at least 15 of the past 20 years automatically becomes domiciled in the UK – and they lose their non-dom status. As a result of this, the number of non-doms in the UK has plummeted from 85,000 to 55,000 since 2017, as shown in the graph below.
The previous Conservative government introduced the plans to change the generous tax breaks for non-domiciled individuals in its 2024 Budget. Labour has since committed to continuing the plans – going a step further to close a “loophole” that allows non-doms to move money into an offshore trust before the ban comes into place in April 2025.
In its public spending audit, the Government confirmed the concept of “domicile status” will be removed from the tax system from April 2025 and replaced with “a new internationally competitive residence-based regime”.
As of next April, with new arrivals to the UK paying the same tax as everyone else after four years. New arrivals to the UK will receive 100pc tax relief on their foreign income and gains for their first four years of tax residence, as long as they have been non-resident for the past 10 years.
To help transition to the new rules, there will be a Temporary Repatriation Facility (TRF), so people can bring pre-April 2025 foreign income and gains held offshore into the UK at a reduced rate of tax.
There may also be tweaks to the policy that make it less punishing to non-doms, due to concerns that the measures would backfire if they forced non-doms to leave the country. One option could be reducing the amount of inheritance tax non-doms would have to pay as a result of the changes.
Further costings are expected to be published at the Budget, on October 30.
Labour is yet to announce its full costings of the non-doms policy.
However, Telegraph analysis found that Labour’s crackdown on non-doms will bring in just £8,000 per person, raising the possibility that it may cost more than it raises, should wealth be driven away from Britain.
Under the Conservatives’ plans, ending the regime would raise an estimated £3.6bn in tax for the Treasury, according to a report by the University of Warwick and the LSE.
The researchers estimated that non-doms hold £10.9bn in income and gains overseas which could be brought into the scope of the UK’s tax system if the regime was scrapped.
However, experts warned that doing away with the generous tax break could drive non-doms to pack their bags and head elsewhere.
The chart below shows how much tax the Treasury has taken from non-doms claiming the “remittance basis”.
According to HMRC, only 55,200 taxpayers claimed to be non-domiciled in 2022, representing 0.08pc of the UK population.
Of these, 37,000 non-doms claiming the “remittance basis” paid over £6bn in tax in 2020-21.