UK Abolishes Non-Dom Tax Status, Prompting Concerns of Wealthy Exodus

The British government has announced the abolition of the non-domiciled (non-dom) tax status for individuals residing in the UK, effective from April 6, 2025. Under the new rules, foreign residents in the UK will only be exempt from UK tax on their foreign income or gains for the first four years of their UK tax residence. After this period, they will be taxed on their worldwide income and capital gains.

The government is also considering changes to the UK inheritance tax (IHT) regime, potentially making liability to IHT dependent on residence rather than domicile. This could mean that those who have resided in the UK for 10 years or more would pay IHT on their worldwide estates, while long-term UK expats may lose their liability to UK IHT.

Why this matters: The changes are expected to have significant implications for high net-worth individuals residing in the UK. Experts predict that many wealthy non-doms may leave the country or become non-UK tax residents to avoid the increased tax charges, potentially resulting in a net loss of tax revenue for the UK government.

The Labour Party has expressed support for the 4-year exemption for new arrivals and the 10-year IHT qualifying period but plans to remove the protection for trusts, even those created before April 2025. Labour also intends to scrap the 50% deduction in 2025/26 and include all foreign assets held in a trust within the scope of UK IHT, regardless of when they were settled. The party expects these changes to raise £2.6 billion over the next Parliament, with £1 billion in the first year.

Long-term UK expats are advised to take action now by transferring as much wealth as possible into offshore trusts before the potential changes take effect, as this planning may no longer be available in the future, especially under a potential Labour government. "The changes are unlikely to raise additional revenue for the UK government and may result in a net loss to the exchequer," warned tax experts.

The abolition of the non-dom tax status and the proposed changes to the IHT regime have raised concerns about a potential exodus of wealthy individuals from the UK. While the government aims to simplify the tax system and ensure fair contributions from all residents, the long-term impact on the UK's attractiveness to high net-worth individuals remains uncertain. As the April 2025 deadline approaches, affected individuals are urged to review their tax planning strategies and seek professional advice to navigate the changing landscape.

Key Takeaways

• UK to abolish non-dom tax status for foreign residents from April 2025.
• Foreign residents taxed on worldwide income/gains after 4 years of UK residence.
• UK may make inheritance tax liability dependent on residence, not domicile.
• Changes may prompt wealthy non-doms to leave UK, reducing tax revenue.
• Long-term UK expats advised to transfer wealth to offshore trusts before changes.