The English legal concept of domicile has returned to the political forefront in recent months.
First, the previous Conservative government announced they would abolish the remittance basis of taxation for foreign income and gains (Figs) of non-UK domiciled individuals (known as 'non-doms'), replacing it with a statutory residency-based system.
Labour then announced they would go further by tightening transitional arrangements and applying inheritance tax to assets held in trust, regardless of when the trusts were set up.
These announcements have prompted many non-doms to reconsider their ties to the UK; many have already left, and others are in the process of doing so before April 6 2025.
This article reviews the proposed changes and considers how they might impact those holding non-dom status. It will also provide an overview of the offerings of alternative jurisdictions and how they compare to the UK.
This article comes with the general health warning that until draft legislation is seen, we cannot say with confidence what the impacts of the new regime will be. All eyes will be on chancellor Rachel Reeves on October 30.
Meanwhile, recent news reports indicate that the government is taking the highly embarrassing step of reconsidering its manifesto commitments – in particular, dropping plans to bring excluded property trusts within the IHT regime for the first time – amid Treasury fears that the proposed measures will fail to increase tax receipts.
Nonetheless, Reeves is reported to be doggedly sticking to her plan to end the non-dom regime and going further than the plans published by the last Conservative government.
As such, and pending clarity from the government as to its actual policy intentions, this article considers the position on the assumption that the changes to be announced in the Budget will be broadly in line with Labour's manifesto commitments.
Current system and proposed changes
Contrary to the common misconception, non-doms are presently not completely exempt from UK taxation. They can subscribe to the remittance basis of taxation for a period of time, meaning they are not taxed on Figs unless those income or gains are ‘remitted’ (that is, broadly, brought to) to the UK.
UK income and gains are taxed on the arising basis in the usual way.
Non-doms who elect to use the remittance basis must pay an annual charge of between £30,000 and £60,000 and lose access to the personal allowance for income tax and the annual exemption for chargeable gains. Additionally, the dividend tax rates are unavailable to them, meaning dividends are taxed as regular income.
As for IHT, non-doms are only subject to IHT on their UK situs assets.
In common with the Conservative party’s plans when in government, Labour’s manifesto commitments promised to abolish the remittance basis and replace it with a new residency-based Figs regime.
