As widely predicted, the existing non-dom regime will be scrapped from April 2025 and replaced with a new residence-based regime.
Chancellor Rachel Reeves said the move was designed to attract investment and talent to the UK.
What is a non-dom?
‘Non-dom’ describes a UK resident whose permanent home – or domicile – for tax purposes is outside the UK. A non-dom only pays UK tax on the money they earn in the UK, not elsewhere.
Non-dom refers to a person’s tax status, rather than their nationality, citizenship or resident status.
Being a non-dom can allow wealthy people to pay less tax than they would if they paid all their tax in the UK. They can do this by nominating a lower-tax country as their ‘domicile’.
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What’s changing?
Reeves announced that a new residence-based regime will replace the current non-dom regime from April 2025.
Offshore trusts will no longer be able to be used to shelter assets from inheritance tax, and there will be transitional arrangements in place for people who have made plans based on current rules.
The planned 50% reduction for foreign income in the first year of the new regime will be removed.
According to the Office for Budget Responsibility (OBR), reforms to the non-dom regime will raise a total of £12.7bn.
Craig Ritchie, partner at GSB Wealth, said: “The abolition of the non-domicile scheme and move to a residency based scheme presents huge opportunities for UK expats, who intend to remain outside of the UK to pass on wealth free of UK IHT. For those transitioning back to the UK, there is an opportunity to take advantage of the generous four-year foreign income and gains (FIG) regime.”
End of tax breaks for private schools
In another blow to the wealthy, Reeves confirmed the government will introduce 20% VAT on education and boarding services provided by private schools from 1 January 2025.
The government will also remove business rates’ charitable rate relief from private schools in England from April 2025.
The Chancellor said the cash will be used for additional funding to help deliver commitments relating to education and young people.
Martin Willis, partner at independent consultancy Barnett Waddingham, said: “They say bad news comes in threes, and after significant cost increases due to the Teachers Pension Scheme, we now know that independent schools will not only have to absorb the planned introduction of VAT on fees and loss of business rate relief, but also the increased National Insurance rate for employers.
“The lowering of the secondary threshold means that as well as an additional 1.2%, these schools will have to pay 15% on £4,100 of earnings for the vast majority of their staff. This will doubtless be hugely challenging for many independent schools trying to balance their finances.”
This article was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: Autumn Budget 2024: Non-dom regime to be scrapped
