Non-Dom: Upcoming Changes in the UK

Starting from April 2025, the United Kingdom will introduce significant tax changes affecting Non-Domiciled Residents, or Non-Dom, status. These reforms were announced by Chancellor Jeremy Hunt in the 2024 Spring Budget.

Being Non-Dom

The Non-Dom regime is designed for those who live in the UK but do not consider it their permanent home. Currently, UK-sourced income is taxed, while foreign income is exempt, provided it is not brought into the UK, a system known as taxation on a remittance basis. Foreign property is also not subject to the UK’s inheritance tax IHT.

Restrictions and Changes

Over recent years, the Non-Dom regime has faced restrictions, especially for those who have stayed in the UK long-term. Those who have been UK residents for at least 15 of the last 20 years or who were born and have lived in the UK since 2017 are considered domiciled for tax purposes, and therefore are subject to tax on worldwide income.

Starting in 2025, the UK government is planning to abolish the Non-Dom status. In its place, a new regime may apply to those who have not been UK tax residents for at least 10 years prior to relocating. This new scheme would offer a full tax exemption on foreign income for up to four years, even if it is eventually brought into the UK.

During the Transition

For those who will lose their Non-Dom status as of 6 April 6 2025, the government is offering some transitional measures: for instance, the Revaluation of Foreign Capital with a specific revaluation date expected to be announced on 30th  October’s Budget; the Business Investment Relief where foreign-sourced capital invested in the UK will not be taxed; the Temporary Repatriation Structure applicable to foreign income and gains earned before 6th April 2025, with specific details on tax rates and duration to be confirmed in the Autumn Budget.

Inheritance Tax IHT

The new IHT rules expected to be in place by April 2025 will introduce major changes. The government is considering whether to include some foreign assets held by Non-Doms in the IHT calculation. A Residency Test for IHT will apply to those who have lived in the UK for at least 10 out of the previous 15 years and would remain subject to IHT for the next 10 years even if they leave the country. Moreover, the abolition of Excluded Property Trusts will mean that these trusts will no longer shield foreign assets from IHT.

And in Italy?

In Italy, the Non-Dom regime offers a flat tax of 100,000 euros on foreign income, with no need for taxation upon remittance, making it less complex than the UK system. This approach makes Italy, along with Monaco and the UAE, attractive for those seeking tax optimisation.

Finally

Italy’s Non-Dom regime, like those in Monaco and the UAE, offers a more favorable tax environment compared to the UK, making it increasingly appealing for those aiming to optimise their tax liabilities. However, it is crucial to remember that the UK, and particularly London, remains an important international hub. With nearly 9 million residents and about 300 languages spoken, the UK continues to attract individuals from diverse backgrounds and for various reasons. As it addresses these evolving tax challenges, it will be essential for the UK government to proceed with careful consideration and responsibility, embracing a forward-thinking perspective.