The UK Closing Its Non-Dom Regime Could Turn Out to Be a Big Mistake

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The UK has offered a special tax status to non-domiciled residents since the late 1700s. However, the British government recently announced it is dispensing with this colonial-era law, implying significant consequences for many international residents, businesses, and even the UK economy.

So, what exactly was non-domiciled status, and what happens now that it’s coming to an end?

Paying a Fee to Avoid Paying Tax

A person with non-domiciled status (colloquially referred to as a “non-dom”) is someone who lives in the UK but lists their primary residence as being in another country. Though many non-doms are originally from overseas, there are plenty of instances of British-born residents opting for a foreign main home so as to take advantage of non-dom benefits.

As a non-dom, an individual pays tax on UK earnings, but income or capital gains generated overseas are exempt.^[3] Under the non-dom regime, foreign revenues over £2,000 (roughly US$2,500) are only subject to tax if they are remitted to the UK^[4]  

To benefit from the non-dom scheme, individuals must pay an annual fee of £30,000 (approximately $38,000) if they have resided in the UK for at least seven of the previous nine years. The figure doubles to £60,000 (about $76,000) for those who have lived in the UK for at least 12 of the last 14 years.^[5] According to British government figures, there are almost 70,000 non-doms in the UK^[6]

Criticism of the Scheme

Considering the sums involved, it’s perhaps no surprise that many high-net-worth individuals (HNWIs) have taken up non-dom status to avoid paying taxes on non-UK income. This includes notable figures such as Roman Abramovich, former owner of English Premier League soccer club Chelsea F.C., and steel tycoon Lakshmi Mittal.^[7] The system, however, has long had many critics who accuse non-doms of shirking their responsibility to the UK national purse.

Among the most prominent names to have benefitted from non-dom tax rules is Akshata Murty, wife of current British prime minister, Rishi Sunak. As the daughter of N.R. Narayana Murty, co-founder of Indian tech giant Infosys, Murty has long been the beneficiary of company dividends,^[8] positioning herself and Sunak among the richest couples in the UK^[9].

But in 2022, Murty’s position as a non-dom came under media scrutiny, and some projected she would otherwise have had to pay £20 million (around $25 million) in taxes.^[10] Murty subsequently surrendered her non-dom status, volunteering to pay tax on her worldwide income.^[11]

The Post-Non-Dom Days Are Almost Over

After Murty’s tax affairs came to light, a chorus of calls for non-dom rules to end emerged. Indeed, the Labour Party – the main opposition to the ruling Conservative Party government – made such an abolition a central part of their messaging ahead of a UK election, which is expected sometime this year.^[12]

Nevertheless, UK Chancellor of the Exchequer, Jeremy Hunt, surprised many by announcing in the recent spring budget that, starting April 6, 2025, the non-dom provision would cease to exist. 

Hunt also claimed the move will add £2.7 billion (about $3.4 billion) to UK coffers.^[13]

At first blush, Hunt’s pronouncements about the change and the billions of extra pounds it will generate certainly sound promising to many. But the Chancellor’s calculations are based on one-time non-doms deciding to remain in the UK – something that is far from assured.

Additionally, it’s possible that, with the end of the non-dom regime, many other HNWIs who might otherwise have considered a move to the UK will instead choose to call somewhere else home. In short, it’s just possible that, rather than increasing tax revenues, the UK treasury will actually miss out.

The Uncounted Costs of Canceling Non-Dom Status

While increasing tax levies and instituting more fairness may be top of mind for the UK government, it’s arguable that, by sunsetting the non-dom era, the government may be creating other risks that could impact the country’s long-term growth prospects.

Again, HNWIs have been some of the major benefactors of the non-dom program, but, because of their financial situation, they are also more likely to invest their wealth. To this point, Hunt has previously suggested the UK has the potential to be “the next Silicon Valley.”^[14] But will the country’s burgeoning tech sector still be so attractive to foreign-born investors after next April?

And what of home-grown entrepreneurs, both established and emerging? Might they not look to move both themselves and their money overseas?

Looking beyond HNWIs, there’s also the possibility that a drain of talent and wealth could have a domino effect on local economies. Not only may there be a dip in companies that create jobs, but also the loss of associated city levies (i.e. council tax and business rates), and a fall in secondary expenditure such as on homes, transport, restaurants, and – the list goes on.

Conversely, there is an argument to be made that allowing entrepreneurship to embed itself in a community over the long term allows for the full realization of second-order impacts. An eight-year study by the Harvard Business Review, published in 2022, found businesses that were able to “scale deep” were more effective in helping their local economies grow.^[15]

Simply put, by revoking the UK non-dom scheme, lawmakers could be risking much more than the flight of wealthy families.

The Long-term View

Any nation that introduces roadblocks for HNWIs introduces the possibility that it is swapping one set of challenges for another. And while it’s reasonable to assume that those who have established a home for themselves and their families are less likely to move, wealth protection remains a powerful motivator.

The rise in popularity of second passports among HNWIs offers many choices with low tax options. Sadly, the UK is unlikely to remain a popular choice. Ultimately, whether the UK’s move to end its non-dom regime was the right move or not will almost certainly be for those impacted to decide.

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