A ‘non-dom’ person is a UK resident whose permanent home is not in the UK and previously only paid UK tax on money earned in the UK, but did not have to pay tax on money made elsewhere.
The regime will commence on 6 April 2025 and applies UK-wide.
In the Budget today, Chancellor Jeremy Hunt said: “I have always believed that, provided we protect the UK’s attractiveness to international investors, those with the broadest shoulders should pay their fair share… We can indeed produce a system that is both fairer and remains competitive.”
He continued on to say that the government would replace the current non-dom regime with a “modern, simpler and fair residency-based system” so that new arrivals to the UK do not have to pay any tax on foreign income or gains in the first four years of UK residency.
Hunt said that this was a “more generous regime at present and one of the most attractive offers in Europe”.
After that period, such individuals will pay the same tax on their foreign income and gains, regardless of status.
Hunt said that the change would raise £2.7bn in the year 2028 to 2029.
He said that to recognise the “contribution of many of these individuals” to the economy, it would put in place “transitional arrangements” for those benefitting from the current regime.
This includes an option to rebase the value of capital assets to 5 April 2019, a temporary 50 per cent exemption of the taxation of foreign income for the first year of the new regime and a two-year temporary repatriation facility to bring previously accrued foreign income and gains into the UK at a 12 per cent rate of tax.
Hunt said that this would attract around £15bn of foreign income and generate over £1bn of extra tax overall.
Non-dom changes not expected to ‘significantly deter foreign buyers’
Parminder Sidhu, partner and head of residential property at Wedlake Bell, said that she did not expect today’s announcement to “significantly deter foreign buyers”.
She said: “The market for foreign investors in London property is strong, with lots of interest especially, from the US and the Middle East.
“Today’s adjustments to the non-dom tax regime may have a dampening effect on foreign investment in the London property market, as existing and potential non-domiciled individuals consider their options, but the fact is that past changes – such as Annual Tax on Enveloped Dwellings (ATED), or the UK’s exit from the EU – did not cause a mass exodus of these individuals from the UK.”
Sidhu added: “Foreign investors and non-domiciles are attracted to London as one of the world’s most vibrant, multicultural cities with excellent jobs, schools, and culture, and are undeterred by the UK’s political scene.
“If the attitude towards non-domiciles continues to harden over the next few years, then we may see a growing reluctance from overseas buyers to invest in London, likely at a detriment to the city’s reputation as an international capital.”
