The recent changes to the UK’s non-dom regime have raised concerns among high-net-worth individuals (HNWIs), particularly those that would have qualified for having an overseas domicile previously. Many worry about the future of their wealth strategies and whether the UK remains a viable option for them.
The UK government's response to mounting concerns
Investment Minister Poppy Gustafsson acknowledged the UK government’s awareness of these concerns, highlighting that they are actively engaging in open discussions with high-net-worth individuals to better understand the impacts of the nation’s tax reforms. While the government stands by the changes its put into motion, it’s clear that they also want to listen to the voices of those affected, especially as media reports increasingly point to a rising trend of wealthy individuals—both foreign and British—leaving for more tax-friendly jurisdictions.
This growing exodus is no small matter. If this shift verifiably continues, it could dishevel the UK’s economy and its status as a global wealth hub. The question now is whether the government can strike the right balance: ensuring fair taxes for residents and keeping public finances strong, all while maintaining the UK’s appeal to international investors.
The non-dom regime in the UK in a nutshell
In the 2024 Autumn Budget, Labour informed it was closing down the non-dom regime that had been existent for decades in the UK replacing it with a residence-based test.
Historically the non-dom regime allowed UK resident individuals whose permanent home was abroad to benefit from the “remittance basis” rules. This meant that any foreign income and gains (FIG) that were not remitted to the UK were essentially exempt of UK tax. Non-UK assets were also protected from UK inheritance tax. UK non-doms were given the right to benefit from this tax exemption for a maximum of 15 years.
How will rules change on the 6 April 2025?
Starting on 6 April 2025, the UK will roll out a new residence-based tax system with the introduction of a four-year Foreign Income and Gains (FIG) regime.
This will benefit individuals who’ve been non-UK residents for the past ten years, as well as newcomers to the UK. For up to four years, these individuals will be exempt from taxes on foreign income and gains, including distributions from eligible non-UK trusts, which can be brought into the UK completely tax-free.
After this four-year period, their worldwide income and gains will be taxed like those of other UK residents.
Individuals who become UK tax residents for les than four years on 6 April 2025 can still use the FIG regime for the remainder of time until they hit the four-year mark as UK residents.
Choosing to opt into the FIG regime comes with its own considerations though: as those individuals will give up certain tax advantages, including income tax personal allowances and the annual capital gains tax exemption.
What is the Temporary Repatriation Facility (TRF)?
The Temporary Repatriation Facility (TRF) is a tax rule introduced by the UK government that allows non-domiciled (non-dom) individuals who are residents in the UK to bring certain foreign income and gains (FIG) into the UK at a reduced tax rate.
Eligibility: It applies to UK resident individuals who are non-doms and have unremitted foreign income and gains (FIG) by 6 April 2025, which means they haven’t brought the foreign income into the UK yet.
Tax Rates: For tax years 2025/26 and 2026/27, the tax rate is 12%. For the tax year 2027/28, the rate increases to 15%.
How it Works: You don’t need to actually bring the money to the UK during these years. The tax is calculated based on how much foreign income or gains you designate for UK taxation, not when the money enters the UK. Stringent record-keeping is necessary, as HMRC will likely conduct compliance checks to ensure the money brought into the UK or designated under the TRF meets the requirements.
Specific Benefits:
- The TRF makes it easier for non-doms to bring foreign income or gains into the UK at lower tax rates, without the complexity of having to physically move those funds to the UK.
- It also helps individuals who have offshore trust structures, and qualify for the four-year FIG regime, as the TRF can apply to benefits if the trust’s income or benefits are from pre-6 April 2025 FIG. Assets held in trusts or company dont qualify for rebasing (see point below).
- The same rules apply if you’ve invested your unremitted foreign income or gains (e.g., invested in property, stocks, or businesses). You can choose to designate these amounts, even if the source of the funds can’t be traced.
- If you’ve claimed Business Investment Relief (BIR) on your foreign income or gains, the new rules also apply to those funds. However, after 6 April 2028, it will no longer be possible to use BIR on new investments or reinvestments.
- If you continued being non-UK domiciled as at 5 April 2025, you can apply the 5 April 2017 rebasing rule when you sell your asset. This means that you only pay tax on the increase of value in your asset from 2017 to the sell-date.
What about inheritance taxes for non-doms?
The residence-based regime that kicks in on 6 April 2025 will tighten the rules on inheritance tax (IHT) making it more complex for long-term non-residents to shield assets from UK taxation.
IHT will be charged on worldwide assets if an individual was resident in the UK for ten out of the last twenty years. By way of example, those with a UK domicile such as British expats would fall out of the inheritance tax scope if they have not been UK resident for ten out of the last twenty tax years.
Open dialogue to ensure the UK retains its lure as a wealth hub
The UK government is actively engaging in discussions with wealthy foreign investors about its proposed tax reforms, as the controversial plan to overhaul the non-domicile (non-dom) tax regime continues to spark debate.
Minister Gustafsson assured they want to keep attracting foreign investment to the UK. “There’s been a lot of open conversations. She’s [Rachel Reaves] heard their concerns and talked to them openly about the challenges she’s trying to solve. It feels like there’s a really warm, collaborative dialogue there”.
Private investment is crucial for the Labour government, which has made economic growth and better living standards key promises for its time in office. However, critics argue that the recent tax increases are unfairly impacting UK businesses and non-doms.
Government data from the 2022-2023 tax year shows that about 74,000 people claimed non-dom status in the UK. A significant portion of these non-doms were from India, making up nearly 14% of the total—a sharp rise from just 4% in 2001. The growing number of non-doms from countries like India, China, and former Soviet states is adding pressure on Labour’s shadow chancellor, Rachel Reeves, to come up with a solution that’s both fair and competitive globally.
Trade, tariffs and taxes
The changes to the non-dom regime are taking place at a particularly sensitive time for the UK. The government is under increasing pressure to review its tax policies as it faces growing concerns from wealthy individuals, particularly non-doms, who are now questioning their future in the country.
While the UK seeks to strengthen its economic position post-Brexit, it also risks driving away affluent foreign investors. The recent tax reforms, particularly those affecting non-doms, have left many individuals rethinking their plans, with some considering leaving the UK for more tax-friendly jurisdictions.
This potential exodus could have serious consequences for the UK economy, which relies heavily on private investment and the inflow of global wealth. How the government responds will be critical in ensuring the UK remains attractive to the talent and capital needed to fuel its economic growth.
The UK's reputation as a wealth hub
The UK has long been praised for its strong legal frameworks and political stability—two key factors that inspire investor confidence and are crucial for any successful wealth hub. This is one reason why countries like Singapore, Dubai, and Switzerland attract so many high-net-worth individuals.
However, if the UK government continues to implement, retract, and revise policies, creating an environment of uncertainty, the country risks losing its reputation for stability and predictability.
The introduction of the four-year FIG regime could also lead to a small influx influx of wealth, with HNWIs relocating to the UK to take advantage of the tax exemptions. But the worry is whether they will then leave after the four years? Could the FIG regime drive away long-term capital, positioning the UK as a temporary tax planning jurisdiction rather than a sustainable wealth hub?
It’s important to recognize that when wealth does begin to leave – as many report is the case in the UK – it’s not just individuals and families who relocate but businesses too. This can hurt corporate income tax revenues, stifle the nation’s entrepreneurial spirit, and ultimately lead to job losses, further undermining the UK’s economic prospects.
So is it all doom and gloom in terms of the UK’s prospects?
No.
HSBC recently issued a report on drivers for diversification in global wealth hubs – surveying business owners and investors. It painted a more balanced picture for the UK.
On the one hand it is undeniable that UK investors and entrepreneurs will continue to be geographically mobile – relocating to global wealth hubs that serve them best over the next 12 months – but there will also be an influx of innovators. Based on their research HSBC noted demand from affluent entrepreneurs from the UAE, the US, and India who all indicated they wanted to relocate to the UK this year.
The UK government’s success in retaining the country’s reputation as a wealth hub and an attractive financial centre will depend on how it balances tax reforms with the need to maintain stability, attract long-term investment, and foster a thriving economic environment.
