What’s Next for Non-Dom Status in the UK?

The new Labour government is scheduled to present its first budget on Wednesday 30 October. Businesses, Property Markets, Property Investors, Companies, Individuals, and non-domiciles eagerly await the budget. Even though property experts are predicting what changes could be coming, no one is sure what will happen or what changes will come into effect.

One change that has been decided is the abolition of non-dom status from 6 April 2025. Due to this, many non-domiciled residents and High-Net-Worth individuals are looking for options outside the UK.

What Changes Will the UK’s Non-Dom Tax Regime Undergo?

The Chancellor has repeatedly warned the taxpayer's government that the budget decisions have been tough but equally necessary for the country's economy. The government mainly focuses on non-dom and high-net-worth (HNW) individuals.

The government has confirmed that it plans to change the non-dom status. The remittance-based taxation system will be replaced by a new residence-based system, which will start on April 6 2025. This change will affect Income Tax, Capital Gains Tax, and Inheritance Tax for non-domiciled residents.

New arrivals in the UK will get a four-year tax break on their Foreign Income and Gains (FIG) regime. During this period, they won’t have to pay UK tax on any profits they make outside the UK, even if they bring it into the country. The information related to Capital Gains Tax (CGT) has not been outlined yet. However, experts predict that the rate and conditions have the possibility of change. There is a high chance of aligning Capital Gains Tax (CGT) rates with Income Tax rates.

What Are the European Alternatives for Non-Dom?

Individuals with the non-dom status are looking for better and possible alternatives and options. Tax competition between countries is fierce, and wealthy individuals relocate for better tax benefits. Here are some European alternatives that non-doms are focusing on:

• Portugal has had a favourable Non-Habitual Resident (NHR) tax regime since 2009. However, the NHR regime has been withdrawn due to political reasons, making it less attractive for HNW individuals.
•  Spain first operated a tax break known as the ‘Beckham Law’ in 2005. It provides taxing income at a flat rate of 24% up to £500,000, with foreign income exempt for up to six years.
• Switzerland is known for its stable environment and lump-sum tax option. The flat annual tax of £168,000 and exemption on certain capital gains can be attractive for High-Net-Worth Individuals (HNWIs).
• Italy has an attractive lump sum regime with a flat annual tax of £168,000 and some CGT exemptions. HNW individuals can also opt for a Special Tax Regime (STR) if they have not qualified as tax residents of Italy for at least nine of the previous ten years.

Conclusion

The upcoming Labour government budget on 30 October will bring significant changes to the UK’s non-dom tax regime. The UK will shift from a remittance-based system to a residence-based system affecting Income Tax, Capital Gains Tax, and Inheritance Tax. New arrivals will benefit from a four-year tax break on foreign income and gains.

As a result of these changes, non-domiciled individuals are looking for alternatives beyond the UK. This could be a greater loss for the country and its economy.