Res-Non-Dom UK: End of Favorable Tax Regime Expected by 2025

The UK government has approved a draft tax reform, contained in the Spring Budget 2024, to abolish the current regime of so-called resident non-domiciled or even res-non-dom and introduce a new special residence tax regime. These provisions will apply as of April 6, 2025, but as of now they bode well for possible future scenarios.

The fiscal package entails the following key points:

•        As of April 6th, 2025, individuals currently classified as res-non-dom will automatically acquire domiciled status and will no longer be eligible to opt for taxation under the remittance basis, which previously allowed for taxation solely on foreign income "remitted" or utilized within the UK. Consequently, they will be subject to ordinary worldwide taxation. To mitigate the disparate tax treatment, a transitional regime will be granted in the first year of the new system's implementation (from April 6th, 2025, to April 5th, 2026), with a 50% exemption on foreign income (excluding capital gains, unless assets held as of April 5th, 2019, are eligible for free revaluation upon disposal).
•        All foreign income (including capital gains and excluding those from offshore trusts) generated in the past by res-non-dom individuals and remitted to the UK by April 5th, 2026, will benefit from a substitute taxation rate of 12% (deemed remittance).
•        Starting from April 6th, 2026, the entire worldwide income will be subject to ordinary taxation in the UK.
•        A new special residency tax regime will be introduced, accessible to all individuals who transfer residence to England for the first time in the last 10 years. This regime will have a limited duration of 4 years and will allow for the exclusion of foreign income and gains from taxation in the UK, including distributions received from foreign trusts, which can be transferred to the UK without any imposition. From the fifth year onward, these individuals will be subject to ordinary taxation on all worldwide income.
•        Changes will also occur in the tax treatments concerning allocations from offshore trusts and in inheritance and gift taxes, currently based on the notion of domicile.

It is foreseeable that current non-domiciled residents will opt to relocate to countries offering more attractive tax regimes for High Net Worth Individuals (HNWI). Among these, Switzerland stands out, offering taxation based on the cost of living (the so-called expenditure tax). Individuals taxed under the expenditure tax do not pay taxes calculated based on their worldwide income and assets, but rather based on their expenditure, i.e., their standard of living, deemed a minimum amount to pay.

Our staff is available for any clarification.