The end of the non-dom tax status: What next?

Please note: The article does not constitute advice or any form of recommendation. Barclays Private Bank does not offer tax advice, and professional advice should always be sought.

In the 2024 Spring Budget, the UK government announced its intention to remove the non-dom tax status, and to replace it with a new residency-based system. 

Having previously vowed to protect the non-dom tax regime, the decision to abolish it entirely, came as a surprise to many. 

To help make sense of the potential implications for international wealth holders either living in the UK, or considering a move to the UK, we convened a panel of experts for an exclusive client webcast. 

Below, is a paraphrased transcript from their discussion which took place on the 13 March 2024. 

Alexander Khan, Private Banker, Barclays (AK): My thanks to everyone for joining us today. In the aftermath of the Spring Budget, I wonder if we could please come to you first Sophie. What did you make of it, and what were the key talking points? 

Sophie Wheeler-Traherne, Government Relations, Barclays (SW-T): We know that the next General Election must be held before the end of January 2025, so this Budget was at the very least, the penultimate big fiscal event before voters go to the polls. 

The announcements were certainly wide-ranging, covering anything from vaping to NICS. And as always, it was a balancing act for the Chancellor – he wanted to fund tax cuts without spooking markets. It will take time for the full implications of his decisions to come through, but we might learn a bit more about the underlying rationales when he appears before the Treasury Select Committee later today. 

AK: And with regards to the General Election that you mentioned, are we any closer to knowing when it might be?

SW-T: The only person who truly knows when the next election will be is the Prime Minister, but current speculation points to a mid-November date. Nothing is guaranteed of course, and we can’t yet rule out May as a potential election month, if the government decides to coincide the national election, with local elections. If it were to be in May, then the Prime Minister would need to announce that decision before the 26 March (2024).

Whilst Labour maintains a significant lead in the polls, a key consideration for all UK parties, is that a lot of voters are currently telling pollsters that they are undecided about whom to vote for. As many as 20% of voters are believed to fall into this camp, which creates some uncertainty. It’s a further reminder that there is potentially a long way to go in this election campaign and the polls could narrow as we get closer to polling day. 

AK: Emma, if we could please turn to you next. What are the implications of the government’s decision to abolish the non-dom tax status? 

Emma Chamberlain OBE, Barrister, Pump Court Tax Chambers (EC): Ultimately, the UK is moving to a simpler, albeit harsher, tax regime for foreign nationals. But there is no doubt it will be easier for wealth holders to manage the new regime, in comparison with the system it replaces. In a number of ways, the old regime was old fashioned and uncertain with significant traps. 

In brief, from April 2025, a foreign national’s tax status will be governed by how many years they have been in the UK, and by how many years they have been out of UK.

For those people who come to the UK to live for the first time, and likewise for those people who return to the UK after a minimum 10-year gap, foreign income and gains will be exempt from UK tax for the first four years of their stay. Thereafter, their worldwide income and gains will be subject to UK tax. 

And for the first 10 years of being in the UK, provided you have been non-UK resident for ten years prior to taking up residence in the UK, you will be exempt from UK inheritance tax on foreign situated assets.

AK: Could we please go into a bit more detail on two topics that I know are of interest to a number of our guests today – inheritance tax, and Trusts?

EC: With regards to existing Trusts set up by foreign nationals in the UK already, and for new Trusts set up before April 2025 where the settlor was not deemed domiciled here, they will be permanently protected from inheritance tax, under the new regime in respect of foreign assets.

And from April 2025, any foreign national who sets up a Trust (whenever this was set up), will be liable for tax on income and gains in that Trust (broadly if they can benefit from the Trust), after the first four years of residence in the UK. 

In theory, both of these things could be unwound and redesigned were a Labour government to come into power. But in reality, this is a highly complex and technical area, and the value of unwinding the policy would need to be balanced against the effort required to do so. Moreover, the new regime is quite harsh so it is hard to see what else Labour would want to do.   

AK: And Alex, I’m interested to hear more about the initial reaction by some wealth holders to this non-dom announcement. 

Alexandra Hewazy, Senior Wealth Adviser and Head of RND, Barclays (AH): In very broad terms, the reaction has not been great and there was a sense of panic about what this might mean for people. In truth, that need not be the case at this stage, but it is a natural human response whenever there is big, unexpected change. 

There’s also a sense of fatigue, with some non-doms tiring of the goal posts being moved so frequently in the UK. Even more so as this Spring Budget announcement was a much bigger move than many people were anticipating. 

One interesting point to note is that there is now more mobility, and Covid lockdowns redefined how and where people live and work. Thanks to the internet and remote working becoming embedded, there’s more fluidity when it comes to geographical bases. For some people, this may make the decision to relocate away from the UK, an easier one.

Other international destinations, such as Italy and the UAE, may now be more competitive (versus the UK) in their efforts to attract foreign wealth holders. 

AK: And how much of this announcement in the Spring Budget will be subject to consultation? 

EC: Some of it will undoubtedly be subject to consultation (IHT and temporary repatriation facility), but the broad principles are unlikely to change. As such, the broad path ahead is clear for international wealth holders. 

Where there is less certainty, however, is with regards to the impact on foreign nationals running overseas businesses from the UK. More clarification from the government is needed in this space.

AH: As a follow on to that, a lot of those people running overseas businesses are here to set-up a UK branch of that enterprise. The UK won’t want to disincentivise international business owners from doing that, but as you say, we are waiting for more information on how they will be taxed.

AK: Moving on slightly, what about carried interest for private equity professionals? Is that the next big theme for politicians?

AH: Interestingly, we’ve heard the opposition talk about looking at carry, and the topic has been covered in a number of publications and media outlets. At this stage, nothing is confirmed and there’s no new policy from any party. 

EC: If things were to change on that front, it would likely need a period of consultation beforehand, due to the complexities of the topic. A lot of people in this space also pay tax in the US, so again, the UK would need to balance any policy change with potentially making the UK a less attractive destination for foreign nationals. 

AH: If I had to sum up events over recent days, I would say that it’s important to digest the news but not necessarily to take significant action right now. 

While the broad path ahead is clear, as Emma said earlier, there is nonetheless value in waiting to see full details of the legislation. Without those details, a potentially harmful decision could be made by a wealth holder.

Some of the key questions to ask yourself, and to get clarity on, might include: When did you become resident in the UK? What financial planning structures do you have in place today? Are you deemed domicile or not? Are you staying, or are you serious about leaving? And if you are leaving, have you looked into alternative visas, education and so on, in the country where you might re-locate to? All of those elements take time to arrange, so it’s important to plan accordingly. 

Ultimately, live where you want to live. And then plan your finances around that. Don’t let the tax tail wag the residency dog. 

AK: My thanks to our panellists for sharing their insights today, and to everyone who joined us on the line. Given it is such a significant topic, we will be sharing more insights and thought leadership articles in the months ahead. There will be lots of speculation in the short term, but we will share our analysis when there is something concrete and relevant to comment on. 

For more information on the key talking points of the wider Spring Budget,  you can read our recent article – UK Budget: When voters and taxes collide. 

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