Exploring Non-Dom Status: Recent UK Changes and Alternative Options
‘Non-dom’ is short for non-domiciled status, and is a term that is used to describe people who live in a country but are not considered to be permanently settled there. The UK (among other countries) offers a non-dom status that allows individuals to avoid paying UK tax on their foreign income and gains, providing that those funds remain outside of the country.
However, in the UK all this is set to change. In the most recent Budget, Jeremy Hunt announced the abolition of the non-dom regime as we know it, effective from April 2025, causing many who currently hold non-dom status in the UK to reconsider their options for wealth management.
In this article we take a closer look at what non-dom status is, how it is changing in the UK and what this could mean for you.
Non-Dom Status Defined
In the UK, a non-domiciled individual is someone who lives in the country but is not permanently settled here. Non-doms only pay UK tax on earnings they make within the country, and they can avoid paying tax on their foreign income so long as it remains outside of the country (for example, in a foreign bank account).
This enables wealthy individuals living in the UK to choose a country with lower tax rates as their domicile, allowing them to make significant tax savings.
Non-Dom Eligibility
Non-dom status is only available to those who meet certain criteria:
1) The individual (or their father) was born in a different country.
2) UK nationals who have chosen to leave the UK and live indefinitely in another country.
There are also certain requirements for non-doms to meet if they do not pay tax on their overseas earnings. For example, if they have been in the UK for at least seven of the past nine tax years, they must pay £30,000.
How Is Non-Dom Status Changing in the UK?
In March 2024 as part of the Spring Budget, former Chancellor Jeremy Hunt announced a major overhaul of the current non-dom regime, set to take effect from April 2025.
Under the new system, taxation will be based solely on residence rather than domicile. This means that after a four-year grace period, non-doms will be taxed on their worldwide income, similar to any other UK resident. During this transition there are specific allowances, such as a reduced tax rate on certain remittances (funds that are transferred to the UK) and options to rebase (or revalue) assets for capital gains tax purposes.
Although the Labour party has yet to announce any updates to the previous government’s proposed regime for non-doms, it is likely that further changes will be announced, with more stringent measures placed on those with non-domicile status.
Impact of the New Rules on Non-Doms
The non-dom regime is no stranger to controversies, such as the high-profile case of Akshata Murty, Rishi Sunak’s wife, who came under fire for avoiding up to £20m in tax payments through use of her non-dom status.
While many believe that the changes to the regime represents a step towards tax fairness, others are concerned that that it could cause significant capital flight from the UK as wealthy individuals decide to relocate elsewhere.
Founder of FreshOps Michael Darby explains
“The changes to the UK’s non-dom status represent a major shake-up that will have wide-ranging effects. As the government tightens its grip on tax advantages for the wealthy, it's almost certain that other countries will step in to attract these individuals by offering similar, if not more enticing, tax regimes."
“This shift is likely to prompt a migration of wealth, with countries like Cyprus, Ireland, Malta, and Greece standing ready to welcome those looking for a new tax-friendly home.”
Which Other Countries Offer Non-Dom Status?
There are a number of other countries that offer attractive non-dom taxation regimes, including Cyprus, Greece, Malta and Ireland.
Let’s take a look at how non-dom status works in Cyprus:
The non-dom scheme in Cyprus offers a number of tax advantages. For example, non-doms do not have to pay capital gains tax, and any income that is earned outside of the country (and not transferred to Cyprus) is exempt from income tax.
Eligibility
To gain non-dom status in Cyprus, you must either:
1) Live in Cyprus for at least 183 days per year, or
2) Satisfy the ‘60-day rule’, which allows for tax residency with only 60 days of presence in Cyprus, provided specific conditions are met (e.g., no other tax residency, engagement in business or employment in Cyprus).
Key Benefits
Non-domicile status in Cyprus offers some attractive benefits. Here’s a quick summary:
Capital gains: There is no capital gains tax in Cyprus on gains derived from the disposal of securities, including shares, bonds, debentures, and options. This is particularly beneficial for investors and those with substantial equity portfolios.
Income tax: Cyprus uses a progressive tax rate on income earned within the country, ranging from 0% for income up to €19,500 to 35% for income over €60,000. However, under the non-dom regime, income earned outside of Cyprus and not remitted to Cyprus is not taxed.
Exemption from Special Defence Contribution (SDC): This means that non-doms do not have to pay tax on income such as dividends, interest, and rental income. This is particularly beneficial for those with significant passive income streams.
Foreign pensions: Foreign pensions can either be taxed at a flat rate of 5%, or as part of the general income taxed at progressive rates. This flexibility allows pensioners to choose the most tax-efficient option.
Explore Your Tax Planning Options with FreshOps
If you’re considering your tax planning options, FreshOps can help. Our network of lawyers and tax experts can help you to find the most advantageous solution for your circumstances, while remaining fully tax compliant.
Drop us a line at admin@fresh-ops.co.uk for expert advice tailored to your needs.