Abolition of Non-Domiciled Tax Status
Effective from 6 April 2025, the long -standing non-domiciled (‘non-dom’) tax system has been abolished with the consequence that everyone residing in the UK is now subjected to new rules affecting taxation of worldwide income and assets, regardless of their domicile status.
Non-dom refers to a person’s tax status and has nothing to do with their nationality, citizenship or resident status, although these factors may have some relevance.
The Government maintains that non-dom status unfairly benefits the wealthy and anticipates that the changes will result in additional revenue for the Treasury of £12.7billion over the subsequent three years.
As with many legislative changes, the new rules will most likely result in increased enquiries and investigations by HMRC to ascertain the proper status of taxpayers, and lead to a potential increase in disputes with HMRC.
Tim Thompson of KANGS comments upon the changes and explains how we can assist taxpayers who may be the subject of an enquiry or investigation by HMRC.
What is Non-Dom Status?
Residency is where a taxpayer lives and pays taxes, based on the number of days spent in the UK.
Domicile is the place where a taxpayer states to be their permanent home or where they would wish to return to indefinitely. Wealthy individuals may nominate a lower-tax country simply to achieve tax savings. Domicile is generally regarded as being inherited from the father at birth. Unless a ‘domicile of choice’ is acquired, domicile of origin normally stays intact, despite years of living in another country.
Accordingly, for tax purposes, a non-dom is someone who resides in the UK but considers their permanent home or domicile outside the UK for tax purposes. This status has, for many years, enabled individuals claiming such status to limit UK liability to income and gains arising in the UK or brought to the UK from abroad.
This situation attracted much criticism as non-doms, although predominantly residing in the UK, were not liable to tax on income and gains earned abroad, unless brought into the UK.
What are the Changes?
The headline changes are:
- Non-dom status has been abolished and replaced with a residence-based tax system.
- All UK residents, regardless of domicile status, will now pay UK tax on their worldwide income and gains.
- There will be no distinction between UK and foreign-sourced income.
The introduction of the residence- based tax system is extensive and extremely technical and includes:
- changes to the current domicile-based system of Inheritance Tax,
- potential loss of protection from tax on foreign income and gains arising within trusts,
- alterations to the operation of Overseas Workday Relief,
Potential Adverse Implications
It will take a considerable period of time for all of the implications for this shift in direction to be understood but potential consequences may involve:
- the UK being less likely to attract experienced professionals and international talent,
- potential double taxation, unless bilateral treaties are in place,
- a decline in foreign property investment,
- a drain in talent with individuals relocating to more attractive tax regimes.
How Can We Assist?
Taxpayers should be cautious over the implementation of the new provisions, as non-doms who fail to comply may find themselves subject to an HMRC investigation.
HMRC investigations are often highly demanding, requiring extensive preparation and the meticulous compilation of detailed information to satisfy HMRC’s documentation and compliance requirements. The process can place considerable strain on individuals, both in terms of time and resources.
The team at KANGS, as a matter of course, monitors all changes and proposed alterations to the tax system and is highly experienced in dealing with HMRC when it conducts enquiries and investigations involving tax disputes of every nature.
If you are, or anticipate, being subjected to an HMRC investigation of any nature you should not hesitate to contact our team.
We would be delighted to hear from and assist you.
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through video conferencing or telephone.
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