What is Non-Dom Tax Status in the UK?

If you declare yourself as having a non-dom status in the UK, it would previously have given you the chance to make significant - and perfectly legal – tax savings by nominating a country with lower tax obligations as your home or 'domicile' country. However, all that is set to change following the recent budget announcement by Chancellor Rachel Reeves. So, what will this mean for your tax obligations going forward?

In this blog, we'll aim to provide some answers. But first, let's address the question "What is non-dom status?" and explore how it currently works. 

What is non-dom status in the UK?

A non-dom tax status in the UK means that you live in this country, but your legal, permanent home (or domicile) is abroad. It's a status that has allowed individuals to avoid paying UK tax on foreign income and gains, as long as they didn't bring it into the UK – i.e. pay it into a UK bank account.

Non-dom status was established in the UK as a way of making the country an attractive place for affluent individuals, investors or business leaders to live. Their business activity was seen to benefit the economy's overall growth and enhance innovation in the UK. For these wealthy individuals, it presented a highly beneficial and legitimate way of making significant tax savings.

How does non-dom status currently work?

As it currently stands, you can claim non-dom status by demonstrating that you intend to remain domiciled outside of the UK. This proof may be via your birth origin or by showing that you have a significant connection to another country. By doing so, you can make use of the tax advantages that this status provides, i.e. no obligation to pay UK tax on income and capital gains earned overseas. This income could include earnings from company stocks or profits from selling a second home, but it is only not subject to tax if it is not brought into the UK or deposited in a UK bank account. However, with a non-dom status, you must still pay tax on income earned within the UK.

How and when is non-dom status in the UK going to change?

On 30th October, Chancellor Rachel Reeves released the new budget announcement that included plans to abolish the non-dom status. This decision demonstrates a significant shift in policy that aims to increase tax revenue and address perceived inequalities.

From April 2025, the government will abolish non-dom tax status in the UK and replace it with a residence-based scheme. These changes are expected to raise £12.7 billion over the next five years.

How might the changes to non-dom tax status affect you?

If you are currently classified as having a non-dom status, when it is abolished in April next year, you will need to report and pay tax on all worldwide income and gains. However, for the first three years, the government will extend the Temporary Repatriation Relief that incentivises wealthy individuals to bring capital and gains into the UK at a reduced tax rate.

In the lead-up to these changes, we recommend working closely with your accountants and financial advisers to plan the best approach for managing your taxes, foreign assets, and UK investments. Keeping up with updates to non-dom tax status is vital. As the finer details emerge, you may need to reassess the most effective way to manage your assets and income.

How we can help

At Keith Graham, our team of experienced accountants can support you with personal tax planning. As well as advising you on how to best navigate the changes to non-dom tax status, we are also skilled at dealing with minimising liabilities on income, capital gains and inheritance tax. Additionally, we can provide guidance and support with completing and filing personal tax returns, as well as managing trusts and estates.

Please visit our Personal Tax Planning Services page to find out more, or get in touch with our team with any questions you may have.