The Chancellor’s plan to abolish the non-dom regime by 2025 is set to revolutionise the tax landscape for non-UK domiciled individuals. The current outdated tax structure will be replaced with a modernised residence-based system that promises to be simpler, fairer, and more competitive. This significant reform aims to attract investment and ensure the UK remains an appealing destination for global investors.
Impact of New Residence-Based Regime on UK Taxation
From April 6, 2025, a new residence-based regime will come into effect, allowing individuals not to pay UK tax on foreign income and gains in their first four years of tax residence, provided they have been non-tax resident for the past decade. This change will impact approximately 78,700 non-doms currently residing in the UK.
The Treasury projects that these reforms will generate £2.7 billion by the end of the forecast period, with an estimated tax boost of £185 million in the initial year of operation, climbing to £2.8 billion in 2026-27 and reaching £3.6 billion in 2027-28. The overhaul of the non-dom tax regime has been a long-awaited move, aligning with Labour party policies to enhance public services like the NHS.
Significant Milestone: Abolition of Non-Dom Tax Regime and Impact on UK Tax Policy
The abolition of the non-dom tax regime from April 2025 marks a significant milestone in tax policy. New UK residents will enjoy a grace period of four years exempt from taxes on foreign income and gains upon becoming residents, after which they will be subject to worldwide taxation. This change introduces an element of uncertainty that may deter potential investors, impacting long-term investments in the UK.
The new regime will require individuals tax resident in the UK for more than four years to pay UK tax on their foreign income and gains like other UK residents. This change is anticipated to generate £2.7 billion in the year 2028-29, affecting medium and long-term residents significantly. Transitional arrangements will be in place for existing non-doms, with provisions for rebasing capital assets and a temporary 50% exemption on foreign income taxation in the first year of the new regime.
The government will introduce a two-year temporary repatriation facility for individuals who paid tax on the remittance basis before April 6, 2025, encouraging the influx of foreign income and gains into the UK at a reduced tax rate. This initiative aims to bring in an additional £15 billion of foreign income and gains onshore, boosting tax revenues by over £1 billion. If any of the announcements made in the Spring Budget 2024, such as the abolishment of non-dom status, have raised questions about your financial stability, don’t hesitate to get in touch with one of our experts at Dow Schofield Watts today.
