Who is a non-dom?

The term ‘non-dom’ refers to a person who is not domiciled in the UK. Broadly, your domicile is where you have your permanent home.

At birth a person takes on a parent’s domicile – usually their father’s. This is known as domicile of origin. For children, if the parent’s domicile changes, theirs does too (domicile of dependence). From the age of 16, the person’s domicile may change if they settle in another country and intend to stay there indefinitely (domicile of choice). In some circumstances, a person may be deemed to be domiciled in the UK for tax purposes.

Domicile is different from tax residence. A statutory residence test applies to determine if someone is resident in the UK for tax purposes. A number of factors may be considered, including the number of days spent in the UK.

How are non-doms taxed?

In all cases, a person is liable to UK tax on their UK income and gains in the tax year that they receive them. Where a person is UK resident and UK domiciled for tax purposes, this also applies to their foreign income and gains. This is known as the arising basis.

For a non-dom, the UK tax treatment of their foreign income and gains depends on whether they are UK resident. If they are not UK resident for tax purposes, no UK tax is due on their foreign income and gains. If they are UK resident, they can choose to pay UK tax on the arising basis or when they bring the funds to the UK (known as the remittance basis).

The person may need to pay an annual charge to use the remittance basis. This is £30,000 where they have been UK tax resident for seven of the nine previous tax years, and £60,000 once they’ve been resident for 12 of the 14 previous tax years. If the person has been UK resident for at least 15 of the last 20 tax years they may become deemed domiciled in the UK, and so cannot use the remittance basis.

The concept of domicile also applies to inheritance tax (IHT), although the rules operate slightly differently. If you are UK domiciled, IHT can be charged on your worldwide assets.

If you are non-UK domiciled, IHT can only be charged on your assets situated in the UK.

How many non-doms are there?

HMRC estimates that there were 74,000 non-UK domiciled taxpayers in the tax year ending 5 April 2023. This figure is up 7.4% on the previous year, although it is still below pre-pandemic levels (see graph 1). The tax revenue from non-UK domiciled taxpayers for 2022/23 is estimated to be approximately £8.9bn.

What changes are planned?

At the Spring Budget 2024, the Conservative government announced that it intended to abolish the “outdated” non-dom regime from 6 April 2025, replacing it with a “modern, simpler and fairer” foreign income and gains regime. At that point, the reforms were expected to raise additional revenues of £2.7bn per year by 2028/29.

Reform of the rules had been Labour Party policy for some time. It reaffirmed that commitment in its General Election 2024 manifesto, promising to “address unfairness in the tax system”.

In July 2024, the Labour government confirmed that it would implement the previous government’s plans, subject to making changes intended to “ensure the new regime is both fair and as competitive as possible”.

Further details are expected at the Budget on 30 October 2024.