UK TIGHTENS TAX RULES FOR NON-DOM BUSINESSES
The United Kingdom has long been a destination of choice for global talent and investment, offering a favourable environment for individuals seeking to expand their businesses. Recent changes in the tax landscape are set to reshape the way individuals with non-dom tax status are taxed, posing implications for those considering relocation under business mobility schemes.
KEY POINTS ABOUT THE UK’S NEW NON-DOM TAX RULES:
- UK tightens tax rules for non-domicile: Starting April 2025, non-domiciled residents (those with permanent homes outside the UK) will be taxed on their global income after four years in the UK. This replaces the current system where they only pay UK tax on UK earnings.
- Newcomers get a tax break: To ease the transition, there’s a generous four-year grace period. Individuals new to the UK will enjoy 100% tax relief on their foreign income and gains for the first four years of residence.
- Impact on business mobility: These changes might make the UK less attractive for some businesses. People with non-domiciled status may choose to relocate to countries with lower tax rates.
- Simpler but not simple: The new system eliminates the complex remittance rules for non-doms. However, navigating transitional tax measures and complexities around foreign income taxation might still be challenging.
- Exploring alternatives: The article highlights alternative residency options for business people seeking lower taxes. Countries like Hungary, Greece, and Switzerland are mentioned as having potentially favorable tax regimes.
WHAT IS NON DOMICILE STATUS?
Non domiciled individuals (or ‘non-domiciles’) are UK residents whose permanent home is outside of the UK. Under the current tax system, individuals with non dom tax status can opt for the remittance basis of taxation, allowing them to be taxed solely on their UK income and gains, with foreign income or gains taxed only if they are remitted, or brought into, the UK.
However, with the changes that took effect in April 2025, the UK government is poised to modernise the current tax system, transitioning from domicile-based taxation to a residence-based framework.
Under the new rules, individuals who have been tax resident in the UK for more than four years will be subject to UK tax on any foreign income and gains, aligning their tax liabilities with those of other UK residents. However, newcomers to the UK will benefit from a generous tax relief scheme, offering 100% UK tax relief on foreign income and gains for the initial four years of tax residence, meaning non-domiciled individuals can bring funds into the UK without any additional tax charge. The abolition of the remittance basis also simplifies the tax process for non doms, meaning individuals will no longer need to navigate complex rules regarding the remittance of foreign income and gains.
The new regime also means that those with non-dom tax status will benefit from transitional arrangements, including a temporary 50% reduction in the taxation of personal foreign income for the tax year 2025-26. After this, individuals who have been tax residents in the UK for more than 4 years, regardless of where they are domiciled, will pay the same UK tax as all other UK residents.
IMPLICATIONS OF THE NEW NON DOM TAX RULE
Although more restrictive now, the new regime does offer a more generous and competitive framework compared to countries operating, or lacking, similar schemes. However, these changes will have significant implications for those proposing to move to the UK under business mobility schemes. Individuals in the UK with non-dom tax status also may begin looking to relocate to countries with lowest tax rates or countries with no income tax, such as the various Caribbean Citizenship by Investment programs offering citizenship for a qualifying investment.
While the new regime serves to simplify aspects of the tax system, complexities persist. After the four year relief period, foreign income and gains become subject to UK tax. This may increase individual’s overall tax liability compared to the previous regime, and could result in challenges navigating transitional measures and taxation nuances.
EXPLORING ALTERNATIVE OPPORTUNITIES
For those exploring residency options beyond the UK, countries with lowest corporate tax rates such as Hungary offer attractive incentives for business mobility. Hungary’s Residency by Investment program provides a pathway to residency and citizenship.
With Hungary boasting one of the lowest corporate tax rates in Europe at 9% and a competitive tax regime, it presents an appealing option for individuals seeking to minimise their tax liabilities while enjoying the benefits of European residency. Individuals considering international relocation may also find the Greek non-dom regime for investors or the Switzerland tax rate – lump-sum taxation based on living expenses rather than income – particularly appealing for their financial strategies.
With many individuals also being eligible for Citizenship by Ancestry in various countries, this avenue can present another opportunity for relocation and the potential to capitalise from countries with lowest tax rates.
NEXT STEPS
Seeking professional advice and staying informed about non dom status changes are essential for navigating the complexities of the new regime effectively. If you are considering seeking residency within the UK, or looking to explore Residency and Citizenship by Investment options in lowest income tax countries.
With over 30 years of experience, Harvey Law Group is a leading international law firm specialised in Citizenship and Residency by Investment programs, operating in over 20 offices worldwide.
If you would like to discuss your requirements further,
you can contact us by telephone at +44 (0) 203 405 5762, or by email at [email protected].
