Flagship policy might inadvertently yield a financial deficit, according to Rachel Reeves' assessment
The United Kingdom's unique non-domiciled (non-dom) tax regime, in place for over 200 years, came to an end on 6th April 2025, ushering in a new four-year Foreign Income and Gains (FIG) regime. This shift marks a fundamental change in the taxation of foreign income for UK residents, with potential far-reaching implications for international investment, job creation, and tax revenues.
Under the old non-dom regime, residents could declare they were permanently domiciled elsewhere for tax purposes, limiting their UK tax liability to UK income and gains, and foreign income only if remitted to the UK. However, under the new FIG regime, most UK residents now face full UK tax on their global income, unless they qualify for the limited FIG regime.
Key features of the new regime include the end of the remittance basis advantage, the introduction of a four-year residence-based FIG regime for qualifying new residents (QNRs), and changes to taxation for offshore trusts. QNRs may benefit from the FIG regime for only the first four years, after which they are taxed on worldwide income and gains. Offshore trusts with non-UK domiciled settlors face altered taxation, including the removal of some protections and the introduction of periodic 10-year and exit charges at a 6% rate.
The changes have reportedly led to a significant increase in departures of wealthy individuals, notably company directors and investors, who previously benefited from the old non-dom advantages. This trend is feared to reduce inward investment, job creation, and broader economic activity in the UK.
The government's aim is to increase tax revenues by removing offshore income shelters. However, it acknowledges the potential for unintended consequences and plans "technical fixes" to improve the administration of the FIG regime. Despite reports of increased departure rates, no immediate policy softening or major reversal has been announced.
In October 2021, Chancellor Rachel Reeves announced the abolition of the non-dom tax regime, aiming to raise £3.8bn for the public purse. Analysis from property company LonRes shows a marked decrease in transactions in London's most exclusive postcodes, which estate agents attribute to falling demand from non-dom buyers.
The exodus of non-doms, some of the richest people in the country, who were not taxed on their foreign incomes under the old regime, could be greater than expected, especially in London. South African billionaire businesswoman Magda Wierzycka, who runs an investment fund in London, has threatened to leave the UK unless the government waters down its plans.
The public finances are under considerable pressure, which will offer little comfort to a chancellor who is operating on narrow margins. The long-term economic effects of the new non-dom tax regime depend on how individuals and businesses adapt, and on any government amendments to address compliance concerns.
- The shift from the non-domiciled tax regime to the Foreign Income and Gains (FIG) regime in the United Kingdom has resulted in a significant change in personal-finance policies, as most UK residents now face full UK tax on their global income.
- With the new FIG regime, the government aims to increase tax revenues by removing offshore income shelters, such as offshore trusts, which have protections and privileges for non-UK domiciled settlors.
- The potential far-reaching implications of these changes in taxation policies are concerning for politics and general-news, as the exodus of wealthy non-domiciles could lead to a reduction in inward investment, job creation, and broader economic activity in the UK.
