Taxes and tax exemptions come and go. But when the Chancellor of the Exchequer, Jeremy Hunt, announced in the Spring Budget that non-domiciled tax status would be abolished in the UK, it was a truly historic moment in the annals of UK tax administration.
‘Non-dom’ status has been part of UK tax law since 1799. According to The Financial Times, it was introduced during the reign of King George III to insulate wealthy colonial landholders from a war levy raised to fight Napoleon.
That it has stuck around for more than 200 years might seem anachronistic. One of those bizarre legal quirks that survive unobserved in a dusty corner of the statute book until someone finally remembers it and realises it’s probably time to get rid.
But that’s not the story of non-dom status at all. It’s always been out in the open. It’s been reformed more than enough times when it could have been struck from the statute book instead. And its durability makes sense when you consider what the main thrust of the exemption is. Allowing wealthy long-term residents in the UK to avoid paying tax on foreign assets and earnings.
Up until the Chancellor’s announcement, and since that last big reform in 2017, the rules have been like this. Non-domiciled residents are those whose permanent home is considered to be overseas, but who nonetheless live in the UK. This allows them to classify assets as also being outside the UK, and income and gains from those assets are subsequently exempt from UK taxation unless they are remitted to the UK (the so-called “remittance basis”).
Abolishing remittance basis
For many critics, non-dom status has long been a brazen tax avoidance ruse. After 225 years of debate, the government finally agrees.
From April 2025, the remittance basis will be no more. From that date, foreign interests and gains (FIG) for all non-domiciled long-term residents will be subject to taxation in the UK, regardless of whether it is remitted here or not.
For the purposes of the new rules, ‘long-term’ means four years or more. FIG will not be subject to tax here for the first four years after a non-domiciled resident moves to the UK. To count as a ‘new’ non-dom and take advantage of that four-year grace period, individuals will have to have been non-resident in the UK at all for the previous 10 years.
There are some transitionary measures. For one, the new rules will only apply to new FIG from April 2025 onwards. For those individuals that already exceed the four-year residence threshold, there will be a 50% reduction in personal income liability for the first 12 months of the new regime. Non-doms also have the option of remitting FIG that arises between now and March 2025 to the UK to be taxed at a rate of 12%.
