Just months ago, the prospect of a Labour victory in the next general election left many UK-based high-net-worth individuals feeling nervous. With opinion polls heavily favouring the opposition and radical tax reforms likely in the event of an administration change, some non-domiciled residents began pondering the merits of an early exit.
Then, in March, incumbent chancellor Jeremy Hunt announced his plans to scrap non-dom status and replace it with a new residency rule, pulling the rug from Labour’s election pledge and upsetting a significant portion of the electorate.
So, what does this mean for people currently claiming non-dom status for tax purposes? We'll explore the answer below.
What are the current non-dom tax rules?
In the UK, “non-dom” is a tax term for residents whose permanent homes are outside the country. It’s not a description of residency or nationality: someone can live in the UK permanently and describe themselves as non-dom. At this point, the key is intent. The non-dom individual must intend to leave the UK for their permanent home overseas at some point in the future.
If you claim non-dom tax status, the income you generate overseas isn’t subject to UK tax, providing it stays abroad. In practical terms, you can generate £50,000 from a business in Malta and, by claiming non-dom status, avoid paying UK tax on that money unless you transfer (remit) it into a UK bank account.
Under current law, you can choose to pay tax on a “remittance” basis for up to 15 years after arrival in the UK. After seven years, claiming the remittance basis incurs a fee, which rises again after 12 years.
Many high earners pay income tax on foreign earnings in their countries of origin. Often, this amounts to less than the tax they’d pay if they brought those earnings into the UK, hence the advantage of claiming non-dom status.
Why is the non-dom regime being scrapped?
Non-dom isn’t new – it’s a tax antique with origins as old as the French Revolution. Politicians on both sides of the political aisle have called for a change to the 225-year-old rule for decades, with the incumbent Chancellor recently claiming “Nigel Lawson wanted to end the non-dom regime in . . . 1988” as a rebuttal to Labours assertion that he’d pipped them to the post.
Critics of the non-dom tax status argue that it lacks fairness, suggesting that individuals who claim this status tend to be wealthier and can afford to pay UK tax in a proportionate manner.
Proponents of the scheme say that it makes the UK a prime destination for high-net-worth individuals who contribute significantly to the economy during their residencies, however long they stay. After all, the lower their tax liability, the more they can invest in domestic business schemes, bonds, shares and other financial securities.
In his recent address, the Chancellor outlined his plans to “get rid of the outdated concept of domicile and the remittance basis in the tax system, and replace it with a modern, simpler and fairer residency-based system." At this point, the status change will go live in April 2025.
According to research from the London School of Economics (LSE), the new system could raise up to £3.6 billion annually. However, that figure assumes most individuals currently claiming non-dom status will decide to stay in the UK. The law's revenue-generating impact could be far less profound if there's a mass exodus.
How will the new residence-based system work?
When the new scheme takes effect, it will reduce the number of years new arrivals have to claim non-UK tax status from 15 to just four, provided they can show ten consecutive years of non-UK residence before arrival. After that initial period, top earners will need to pay UK tax on all global earnings – even those deposited in foreign bank accounts.
Many experts believe this will put significant pressure on newcomers to establish a stable presence in the country within a comparatively short timeframe.
What about inheritance tax?
Historically, claiming non-dom tax status meant high-net-worth individuals could safeguard assets inherited overseas by placing them in bank accounts abroad, rather than bringing them into the UK. Unfortunately, this protection might be removed under the terms of a separate government consultation, which hasn’t been finalised yet.
If inheritance tax protections are scrapped, individuals who inherit substantial assets abroad stand to lose a portion of those assets in tax. At this point, non-UK assets held by non-UK trusts which fall into the “excluded property” category are expected to remain outside the scope of inheritance tax.
Unfortunately, other non-resident trusts typically used to safeguard assets – settlor-interested trusts, for example – won't be protected anymore. Instead, any income gained from those trusts would be taxed on an arising basis each year.
Will there be a transition period?
On the good news front, there will be a transition period for high earners living in the UK who have, until now, been eligible for non-dom status.
In the first year of the Conservative Party’s new residence-based scheme, high-net-worth individuals must only pay UK income tax on 50% of their foreign earnings. So, if you earn £75,000 abroad between April 2025 and April 2026, only £37,500 will be considered when calculating your UK income tax liability. Unfortunately, the same won’t apply to foreign gains made in the scheme's first year.
When the new regime begins in April 2025, it will also kick off a two-year period during which high earners will only have to pay 12% tax on certain assets brought into the UK from abroad. Importantly, this "temporary repatriation” initiative only applies to income and gains made before April 2025.
If you intend to stay in the UK, you could make the most of this repatriation window to bring overseas assets onshore before regular income tax rates apply. In the run-up to the change, we recommend taking advice from a trusted accountant.
Will high-net-worth individuals leave the country?
In 2022, a joint report by the LSE and the University of Warwick found that 20% of bankers earning more than £125,000 per year – including former HSBC CEO Stuart Gulliver – had claimed non-dom status at least once. According to HM Revenue and Customs, 68,800 individuals filing self-assessments declared themselves non-doms during the same fiscal year.
Opinions vary on the likelihood of a high-earner exodus after the residence-based tax regime comes into force. When the last set of non-dom rule changes were made in 2017, about 10% of those affected did leave. However, in any given year, 5% would have gone elsewhere anyway. After all, high-net-worth people are naturally mobile.
If you’re worried about how the abolition of non-dom status will affect your financial plans, you’re not alone. While many high earners plan to stay and adapt to the change, some will decide to relocate to preserve or enhance their existing tax benefits.
Bound for Dubai?
Those who believe they’ll fare better financially outside the UK have several possible destinations to consider. In Italy, a €100,000 fee paid annually will shelter all your foreign earnings and gains from Italian tax liability for 15 years. Favourable tax rules also apply in places like Greece, Portugal, Monaco and Switzerland.
However, many high earners have their sights set on a very different landscape: the UAE, and specifically, Dubai.
With ambitious plans for growth, a robust economy and a rapidly developing business landscape, the emirate holds broad appeal. Its free zones offer a range of tax exemptions, including zero corporate tax for businesses operating within them. Entrepreneurs looking for a strategic global base choose Dubai for its hyper-modern infrastructure and amenities, benefitting from low barriers to trade and a total absence of foreign exchange controls.
Meanwhile, people keen on preserving generational wealth enjoy enormous financial freedom, paying no income tax, no capital gains tax and no inheritance tax. Dubai's thriving community of roughly 240,000 British expats – including 1,500 millionaires – makes a warm welcome almost inevitable.
Planning for the future
There’s a lot to love about the United Kingdom. Historical landmarks, a thriving arts scene and beautiful cities weave a vibrant and diverse cultural tapestry across the nation. Meanwhile, innovation and investment opportunities abound in London and beyond.
While a small portion of those affected by the non-dom tax status change are expected to leave the country, many current residents will decide to stay. Still others might choose a hybrid approach, emigrating but maintaining a part-time presence in the UK.
Importantly, if Labour does win the general election, it may decide to change the terms of the transition period – for example, opting to scrap the 50% non-UK income tax suspension during the new scheme’s first year.
“The upcoming abolition of non-dom status presents a significant shift in the tax landscape,” says Interpolitan Founder and CEO, Rishi Patel. “If you’re a high-net-worth non-domiciled individual impacted by this, it's essential to consider all related financial planning implications and, with these in mind, carefully evaluate your options for the future.
When tax rules change significantly, it can be hard to know what to do, regardless of your political persuasion. Before making solid plans, we recommend seeking the advice of an experienced accountant who can help you explore short and long-term financial options in the country and abroad.
Stay financially flexible with Interpolitan
Whether you decide to stay in the UK or relocate in light of the rule change, it’s sensible to maintain a flexible financial framework. Opening an alternative bank account in addition to your existing traditional bank account can help you move funds between countries, even if you emigrate.
Personal service needn’t be an afterthought, either. At Interpolitan, all accounts come with a relationship manager as standard, so you can speak to someone familiar on the phone or via email whenever you need assistance. Our reassuring approach to alternative banking isn’t something you’ll find elsewhere.
We also work with intermediaries, including family offices, accountants and wealth managers, so if you’re looking for a premium solution for your client, please get in touch with us.
At Interpolitan, we put you first. Learn more about our services here, or open an account today.
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