What does non-dom mean and how are the rules changing?

Non-doms or whatever they are now called?

In the Budget, the Chancellor announced significant changes to the non-domicile rules.  These only take effect from 6 April 2025.

The new rules apply to those who have spent 10 years outside the UK, and after four years of UK residence, they will be liable to pay UK tax on their worldwide income and gains. 

• For those first four years, they will not be liable to UK tax on their non-UK income and gains and will be able to bring that income and those gains to the UK free of charge for the first four years. 
• Those who have been in the UK for less than four years will be able to use the remaining number of years available to them.

But what about those who left the UK and returned within a ten year period?  What happens to them? 

Well, they will be liable to pay tax on 50% of their foreign income in 2025/26 with 100% of their foreign income being taxable from 6 April 2026.  Foreign gains become taxable in full from 6 April 2025 for these individuals, although it will be possible to rebase assets held as at 6 April 2019 to the value as at that date.  Thy will also be able to bring in unremitted personally generated foreign income and gains arising before 6 April 2025 at a reduced rate of just 12% under a special new Temporary Repatriation Facility which will be available between 6 April 2025 and 5 April 2027.

One of the more interesting points arising is that from April 2025, income and gains arising in a non-UK resident trust will become taxable on any UK resident settlor if they have been UK resident for more than four years.  This applies regardless of when the trust was settled.  This brings such trusts into line with the way UK resident trusts are settled. 

However, the HM Treasury Policy Note covering this does say that the IHT position on such trusts will continue - so if they are excluded property trusts (non-UK assets held by a non-UK domiciled trust), they should still be outside the UK IHT net.  In addition, any such trusts settled by 5 April 2025 will be outside the UK IHT net.

Of course, an election is expected and any of these rules may change. Watch this space!

Want to stay ahead of the curve, contact us today to discuss your tax planning with one of our experts.