What does non-dom mean and how are the rules changing?
- Published
Akshata Murty with her husband, Prime Minister Rishi Sunak
Chancellor Jeremy Hunt has announced that the government will scrap the non-dom tax status in the UK.
Mr Hunt previously defended the arrangements, arguing they helped ensure that the UK was an attractive place for wealthy people to choose to live and work.
What is a non-dom?
"Non-dom" describes a UK resident whose permanent home - or domicile - for tax purposes is outside the UK.
It refers to a person's tax status, and has nothing to do with their nationality, citizenship or resident status - although it can be affected by these factors.
A non-dom only pays UK tax on the money they earn in the UK. They do not have to pay tax to the UK government on money made elsewhere in the world (unless they pay that money into a UK bank account).
For wealthy individuals, this presents the opportunity for significant - and entirely legal - savings, if they choose a lower-tax country as their domicile.
One of the most well-known non-doms is Prime Minister Rishi Sunak's wife, Akshata Murty.
After details of her status emerged, she said she would start paying UK tax on her earnings generated outside the UK.
How are the non-dom rules changing?
As part of the March 2024 Budget, Mr Hunt said the non-dom tax regime will be phased out.
From April 2025, people who move to the UK will not have to pay tax on money they earn overseas for the first four years.
After that period, if they continue to live in the UK, they will pay the same tax as everyone else.
Those people who currently have nom-dom status will be allowed a two-year transition period, during which they will be encouraged to bring their foreign wealth into the UK system.
The chancellor said getting rid of the non-dom status will raise £2.7bn a year by 2028/29.
In April 2024, shadow chancellor Rachel Reeves said that if Labour wins the next general election, it will strengthen the planned reforms.
It would remove a 50% discount in the first year of the new rules and include foreign assets held in a trust within the UK inheritance tax framework.
Ms Reeves said Labour's changes could raise £2.6bn over the course of the next Parliament.
How do you become a non-dom?
You can become a non-dom in two main ways:
Domicile of origin - if you were born in a different country from the UK, or if your father came from a different country
Domicile of choice - if you are over 16 and choose to leave the UK and live indefinitely in another country
Many of the UK's non-doms live in central London areas such as Westminster and Kensington
What are the current rules for non-dom status?
If you are a non-dom, external and you choose not to pay tax in the UK on your overseas earnings, you must pay:
£30,000 if you've been here for at least seven of the previous nine tax years
£60,000 for at least 12 of the previous 14 tax years
In 2017, the non-dom rules were changed to mean you can no longer claim this status if you have been a UK resident for 15 out of the previous 20 years, or if all the following conditions apply:
you were born in the UK
your domicile of origin was in the UK
you were resident in the UK for at least a year since 2017
However, if you earn less than £2,000 a year from foreign earnings, and you do not bring that money into the UK, you do not have to do anything.
How many non-doms are there?
According to the latest figures from HM Revenue and Customs (HMRC), external, 68,800 people claimed non-dom status in 2022.
This is a slight increase from the previous year but overall, there has been a downward trend since the 2017 rule change.
A study of people who were non-doms in 2018, external, or who had claimed non-dom status since 1997, found that:
more than 93% were born abroad, and another 4% had lived abroad for a substantial period
three in 10 people who earned £5m or more claimed non-dom status, compared with fewer than three in 1,000 among those earning less than £100,000
most non-doms came from Western Europe, India and the US, although there had been a rapid rise since 2001 of non-doms from China and former Soviet states
most lived in and around London - and more than one in 10 adults in Kensington, the City of London and Westminster were, or had been non-dom