UK Domicile and Non-Doms – election 2024 explainer

This explainer is part of a series produced by CIOT for the 2024 general election.

You can also watch our video explainer.

What is a non-dom?

Short for ‘non-domiciled’ it means someone who is resident in the UK but not ‘domiciled’ here – a concept we explore further below. The debate around non-doms’ taxation primarily relates to whether people who live in the UK for a period of time but do not see it as their permanent home should have favourable treatment for UK tax purposes.

What decides whether someone is UK-domiciled?

An individual is domiciled in the UK if they ‘belong’ in the UK and it is their home. This is usually established through their parents’ (usually father’s) domicile at the date of the individual’s birth, known as ‘domicile of origin’; or by making the UK their permanent home and renouncing their native land. This last possibility is generally referred to as a ‘domicile of choice’, but that term perhaps understates the difficulty of making such a change: it is not a matter just of deciding, but of carrying through that decision in your style of life.

After being resident for 15 years in the last 20 in the UK you become ‘deemed domicile’ here for tax purposes.

Domicile is unrelated to a person’s nationality, residence or ethnicity.

So, domicile is not the same thing as residence for tax purposes or having a UK passport?

No. Residence is based on physical presence in the UK over the course of a tax year, whereas domicile is about someone’s long-term home. Likewise, possessing a UK passport does not automatically confer UK domicile and having a foreign passport does not preclude having UK domicile.

Many people have more than one nationality and passport, whereas you will always be regarded as domiciled in only one country at a time.

Most other countries, likewise, pay little heed to an individual’s passport when considering who pays tax there. The USA is the most obvious exception, with US passport and Green Card holders subject to US taxes on their worldwide income, like tax residents are in most other countries.

What difference does domicile make to your UK tax liability?

As things stand (that is, ahead of either the Conservative or Labour proposals being implemented), people who are both UK domiciled and UK resident are taxed in the UK on the ‘arising’ basis. This means they are taxed in the UK on their worldwide income and capital gains (subject to mitigations and reliefs designed to avoid double taxation).

If someone is UK resident, but ‘non-dom’, then they can choose for non-UK income and gains to be taxed on the ‘remittance’ basis for a number of years, meaning they are only taxed on foreign income and gains insofar as they are ‘remitted’ (i.e. brought into) the UK. A non-dom resident in the UK is always taxed on an arising basis on any UK-based income and gains, but any non-UK income or gains are not liable to UK tax unless remitted to the UK. Although the rules around remittance are complicated, most wealthy non-doms subject to the remittance basis can live in the UK without remitting much, if any, of their foreign income or gains.

Does being non-dom constitute tax avoidance, or exploiting a loophole?

No. The government defines tax avoidance as “bending the tax rules to try to gain a tax advantage that Parliament never intended”. The non-dom rules are explicit and contained within statute so being non-dom and paying tax on the remittance basis is nothing illicit or accidental.

Non-dom status cannot be called a loophole either – loopholes are opportunities for taxpayers, based on close reading of the legislation, that Parliament did not intend: there is no question that the general thrust of the rules around non-dom status were fully intended to operate as they do.

Notwithstanding all that, the rules around domicile are complex and lacking in clarity (unlike those for residence, which is defined by a Statutory Residence Test). For example, the definition of what constitutes a permanent home is imprecise, and much revolves around the taxpayer’s intentions for the future, which are hard to determine objectively. Even identifying one’s country of domicile can sometimes prove problematic, given the wide concept.  Differences of opinion between HMRC and taxpayers often need to be adjudicated by tribunals and courts.

How many non-doms are there in the UK?

According to HMRC there were 68,800 individuals claiming non-dom taxpayer status in the UK in the tax year 2021-22, up from 68,000 in the previous tax year. In the tax year 2019-20 (ie before the pandemic) there were 77,300 non-domiciled taxpayers. (The next annual update to these figures is scheduled for 9 July 2024.)

How much tax do they pay now?

The total UK income tax, capital gains tax and national insurance paid by all non-doms was £8.49 billion in the year to 5 April 2022, an average of just over £120,000 each. Clearly this population in general enjoys a very high income, though this is not universal and there will be many individuals with much lower income.

What are the Conservatives proposing?

In the March 2024 Budget the Chancellor announced that the government would be abolishing the remittance basis of taxation for non-doms in relation to foreign income and gains arising from April 2025 and replacing it with a simpler, residence-based system. 

There will be special rules for the first four years of UK residence following 10 years’ non-residence. Those who qualify would be able to bring foreign income and gains arising in those years into the UK without paying tax on them.

However, after four years of UK residence, an individual would be subject to the arising basis of tax, i.e. their worldwide income and gains would be subject to UK tax irrespective of whether they bring monies into the UK or not. However, only 50% of foreign income (not gains) will be subject to tax in 2025-26 for those who cannot benefit from the four-year exemption window.

Similarly, for inheritance tax the Conservatives propose to move from a domicile-based regime to one based upon residence. People who have been resident in the UK for 10 years will be subject to inheritance tax on their worldwide assets, but those who have not will only be subject to inheritance tax on their UK situated assets. Once subject to the new rules, someone subsequently leaving the UK would remain subject to them for a further 10 years after departure (this is known as the ‘tax tail’).

What difference would the Conservatives’ changes make to the UK tax liability of those affected?

For those who have kept foreign income and gains offshore and enjoyed the remittance basis with no UK consequences, the changes will make a significant difference. However, many of those will also have paid a remittance basis charge of either £30,000 or £60,000 after 7 or 12 years’ residence respectively on top of tax on their remittances, so the difference on their UK tax liability might be more limited once those charges disappear. From April 2025, the effect on their UK tax liability will depend on the levels of their foreign income and gains rather than whether they remit them.

There will be a ‘Temporary Repatriation Facility’ (TRF) available to those who have claimed the remittance basis in the past. They will be able to remit pre-6 April 2025 foreign income and gains in the 2025/26 or 2026/27 tax years and pay tax on such remittances at a flat rate of 12%.

The government predict that the changes will raise an extra £2.7 billion a year by 2028-29. (See the ‘scorecard’ on pages 65-68 of the Budget Red Book) with an additional £1 billion from the TRF.

We provide more detail on the Conservative proposals here.

What are Labour proposing?

Labour have said they support most aspects of the Conservatives’ proposed replacement to the non-dom rules, including the 4-year arrival window and the 10-year window for inheritance tax, but they want to address what they consider to be ‘loopholes’ in the current government’s plan.

Specifically, Labour say they would:

• Include all foreign assets held in a trust within UK inheritance tax, whenever they were settled (as opposed to only those settled after 2025 as the Conservatives propose), so that nobody living in the UK permanently can avoid paying UK inheritance tax on their worldwide estates. By not doing this, Labour suggest the current government is foregoing approximately £430 million in inheritance tax a year.
• Not give a 50% discount for income in the first year of the new rules. Labour say this would raise a one off £600 million.
• Consider whether there should be an investment incentive during the four-year window, so that UK investment income is free of UK tax and not disincentivised versus investment elsewhere in the world.
• Explore ways to encourage people to remit stockpiled foreign income and gains to the UK, to “end the legacy of the current non-dom rules”.

So, will non-domicile status no longer exist after 2025?

Domicile is a general law concept, applicable in a number of legal contexts including succession law, jurisdiction claims and the validity of wills. Nothing changes here.  The proposed changes simply remove domicile as a relevant connecting tax factor from April 2025. 

What is the case for the proposed changes?

Moving from domicile to residence as the basis for taxing people who are internationally mobile makes sense. As well as being a major simplification, it is a fairer and more transparent basis for determining UK tax.   Residence is determined by criteria far more objective and certain than the concept of domicile.

And of course it is expected to raise much-needed money for the Exchequer.

What is the case against?

The concern of those who defend the current regime is that the abolition of the domicile rules, and taxing all UK residents on their worldwide income, could drive many wealthy individuals from the UK altogether, generating a fall in UK tax receipts. As noted above non-doms currently pay an average of just over £120,000 each in UK tax. If the tax regime leads to them leaving the UK we will lose this income too. (However, the 2017 reforms, which significantly tightened the non-dom regime, do not appear to have led to a large exodus of non-doms from the UK.) 

In some cases these people will also be significant inward investors or potential investors into the UK. Labour’s proposals (vague so far) around investment incentives are relevant here.

CIOT has criticised the government’s failure to consult ahead of announcing the change, and we have warned that a four-year arrival window is a drastic reduction from the current 15 years remittance basis. (More here.)

Further information

For further information we recommend our March 2024 non-dom explainer which, in addition to questions addressed in this explainer, answers the following questions:

• Who are the non-doms? (I.e. what jobs do they do? How much do they earn?)
• How do the domicile rules currently affect inheritance tax?
• How does someone become UK domiciled?
• What is the justification for having the non-dom rules these days?
• Are the non-dom rules unique to the UK?
• Do UK resident non-doms taxed on the remittance basis pay tax anywhere else on their non-UK source income? (In which we explore the example of the Prime Minister’s wife, Akshata Murty)
• Would abolition of the non-dom rules yield more tax?

Additionally, we recommend this short guide to the concept of 'domicile' and its tax implications which has been produced by members of the CIOT's Private Client (International) Committee and was published in December 2023.

This explainer was written by:
Chris Thorpe, Technical Officer, Chartered Institute of Taxation
George Crozier, Head of External Relations, Chartered Institute of Taxation

Published 12 June 2024