The end of the UK’s unique ‘non-dom’ tax regime has been announced. The Chancellor of the Exchequer, Jeremy Hunt, announced its suspension last April. This tax regime will be replaced by a new system of taxing foreign income and gains, known as FIG, from 6 April 2025. This article looks at who will be affected by this reform and what the key issues are.

What are the benefits of non-dom status?

This highly advantageous, lower tax status, the resident non-dom regime has encouraged many wealthy individuals to live in the UK while maintaining their domicile (permanent residence) abroad.

The benefit: tax advantages. Tax is calculated on a territorial basis. Tax is levied only on UK source income or repatriated foreign income.

In practical terms, a French individual resident in the UK but domiciled in France and enjoying non-dom status would pay no tax on income and capital gains (such as dividends) from an account in France as long as he leaves all income and capital gains outside the UK and that they were sourced before he moved to the UK. This allows him to capitalise in France or spend capital gains elsewhere in the world.

The same applies to UK inheritance tax. Inheritance tax is paid on UK assets, not non-UK assets.

What will change with the FIG regime – Foreign Income and Gains?

With UK non-dom status

Tax is charged on UK source income.

First 7 years: tax free.

Years 8 to 11: flat rate tax of £30,000 to qualify for the regime.

From the 12th year: flat rate tax of £60,000 to benefit from the tax regime.

From the 15th year: it is no longer possible to benefit from this scheme.

With FIG status

The first 4 years: new UK residents are not taxed on their overseas income and capital.

If they decide to repatriate their overseas income, they can apply to be exempt for 4 years, renewable each year.

From the 5th year: new residents will pay the same tax as UK residents.

A transitional period would be introduced for existing non-doms who have had this status for more than 4 years.

For the 2025/2026 tax year, the amount of taxable income would be reduced.

Capital gains tax would be reduced.

A temporary repatriation allowance would be introduced for 2 years.

This small tax revolution will affect many expatriates who have chosen to live in the UK to take advantage of these tax benefits, and who will see their tax regime change as a result. This announcement is only the beginning. We will have to wait for the draft legislation and the outcome of the next general election, probably in the second half of 2024, to find out exactly what the new legislation will entail. If you have any questions about buying a property, please do not hesitate to contact us.