One of the biggest news from the Spring Budget this year was the abolishment of the non-domiciled (Non-Dom) tax regime. Research conducted by the London School of Economics and Political Science and the University of Warwick, titled "The UK’s Non-Doms: Who are they, what do they do, and where do they live?", revealed that many of them are exceptionally wealthy. In 2018, over 40% of UK residents earning £5 million a year claimed Non-Dom status. The changes are set to affect Ultra-high-net-worth (UHNW) individuals and their respective Family Offices. This article seeks to delve into the implications of these amendments for Family Offices and UHNW individuals who are already residing in or considering relocation to the UK.

What is Non-Dom?

The Non-Dom regime has been a part of the UK’s tax system for over 200 years. Non-Doms are individuals whose permanent home, or domicile, is considered to be outside the UK. It is a favourable tax regime which allows Non-Doms who are UK residents to opt to use the remittance basis of taxation. These individuals are only taxed on foreign income and gains (FIG) remitted to the UK, rather than their worldwide income and gains for up to 15 years. According to HM Revenue & Customs, there were an estimated 68,800 Non-Doms in the UK in 2022.

For the UK government, it has long served as a key factor in making the country an appealing jurisdiction for wealthy individuals and investors to relocate to.

What are the changes?

Under the new rules, the concept of “domicile” will no longer be linked to UK tax purposes. The Non-Dom regime is abolished and replaced by a new beneficial tax regime based on tax residence.

The “modern, simpler, and fairer residency-based system” according to Hunt, is a 4-year exemption system that will come into effect from 6 April 2025, under which:

  • New arrivals to the UK will not be taxed on their FIG or distributions from non-resident trusts. These can be brought into the UK freely without a tax charge.
  • After the initial four years, individuals will be taxed on their worldwide income and gains following the normal tax rules for UK residents.

For those who currently hold Non-Dom status, the government has announced transitional measures:

  • Non-Doms who are not eligible for the new 4-year regime will be taxed on 50% of their foreign income for 2025/26.
  • For 2025/26 and 2026/27 only, a reduced rate of 12% will apply to remittances of pre-6 April 2025 personal FIG.
  • From 6 April 2027, remittances of pre-6 April 2025 FIG will be taxed at the normal rates.
  • A Capital Gains Tax rebasing of non-UK sited assets will be available to those who have historically claimed the remittance basis and remain neither UK domiciled nor deemed domiciled by 5 April 2025.

The protected trust regime will also effectively cease to apply, meaning that foreign assets held in trusts set up after 6 April 2025 will be taxable on the trustees if the settlor:

  • has been resident for 10 years; or
  • has been resident at some point during the last 10 years.

The Non-Dom regime also rules an individual’s inheritance taxation (IHT). While it is still under consultation, it is envisioned that individuals who have been resident in the UK for 10 years will due liabilities for IHT on their worldwide assets. Conversely, a person will only lose liability for IHT on worldwide assets when they have been non-resident for 10 years.

What are the implications?

It is important to highlight that, at the moment, there is no draft legislation concerning the reform under consideration. This means that the new regime is subjected to changes and no immediate action is warranted. Nonetheless, we believe it is important to thoroughly assess the implications of the proposed changes and prepare for any eventualities.

The removal of this regime means that individuals who have been long-term residents in the UK will be subject to UK tax on their worldwide income and gains, regardless of where the income is generated or where the assets are held. As they would have been UK tax residents for over 4 years when the changes are implemented, and will not be eligible for the 4-year regime.

The changes to the protected trust regime will also negatively impact the UHNW individuals and families who have trust structures in the UK. These changes could lead to higher tax liabilities and costs for UHNW individuals and Family Offices operating in the UK, deterring them from coming to the country.

While the UK stands strong as a global financial hub, this decision is set to pose a risk to the country’s ability to attract global investors and UHNW individuals. Many are saying that the country will lose its competitive edge to its European counterparts, such as countries like Italy, which offers a Non-Dom equivalent regime. The Financial Times stated there is an estimated 10-20% of current Non-Doms who will not meet the new regime’s criteria would leave the UK.

UHNW individuals and Family Offices will need to carefully consider the implications and adapt their financial planning accordingly. Seeking advice from tax experts and legal professionals will be crucial in navigating these changes effectively.

We anticipate the new rules to prompt demand for tax professionals in the Single Family Office space in the country. Agreus is an established full-service resources and recruitment consultancy dedicated to working exclusively with Family Offices. We are headquartered in the UK and have an established presence in the country. If you need a more tailored conversation about hiring for your Family Office, please do not hesitate to get in touch.