Doms and Non-Doms

Why Doms and Non-Doms Are Leaving the UK: Inheritance Tax and the 2025 Rule Changes

Introduction

The UK has long been a magnet for wealthy families. London offers strong business opportunities, top schools, and a trusted legal system. A major reason was the non-domicile tax regime, which gave foreign nationals unique advantages.

But now things are changing. With inheritance tax (IHT) at 40% and the non-dom system being abolished in April 2025, the UK is becoming less attractive. Wealthy families, both domiciled (doms) and non-domiciled (non-doms), are asking whether it still makes sense to stay.

---

Step 1: Understanding Domicile in UK Tax

Your residence is where you live. Your domicile is your permanent home.

• UK Dom (domiciled): Permanently tied to the UK. Taxed on worldwide income and gains. Entire estate exposed to IHT.

• Non-Dom (non-domiciled): Lives in the UK but legally tied to another country. Historically avoided UK tax on foreign wealth.

---

Step 2: How Non-Doms Benefited Before

Non-doms once enjoyed some of the best tax benefits in the world:

• Could use the remittance basis → pay UK tax only on UK income and foreign money brought into the UK.

• Overseas wealth could grow untouched by HMRC.

• IHT applied only to UK assets, not worldwide.

This gave wealthy families the best of both worlds: London life + global wealth protection.

---

Step 3: The Pressure of Inheritance Tax

Inheritance tax is the main reason many wealthy people are reconsidering the UK.

• Nil Rate Band (NRB): £325,000 tax-free.

• Residence Nil Rate Band (RNRB): £175,000 if the main home passes to children.

• Couples can combine allowances → £1m tax-free.

• Everything above is taxed at 40%.

Example

A couple owns:

• £2m London property

• £1.5m investments

• £500k savings

Total estate = £4m.

• Tax-free allowance = £1m

• Taxable estate = £3m

• IHT bill = £1.2m

Children inherit £2.8m instead of £4m. In countries like Monaco or Dubai, they would inherit the full £4m.

---

Step 4: Old Rules vs New Rules (Side by Side)

🔹 Old Non-Dom Rules (Before April 2025)

• Could use remittance basis to shield foreign income and gains.

• Overseas wealth could remain outside UK tax.

• Deemed domicile after 15 of 20 years → worldwide income and IHT exposure only at that stage.

• IHT applied mainly to UK assets until deemed domiciled.

🔹 New Non-Dom Rules (From April 2025)

• Old system abolished.

• First 4 years (if not UK resident in the last 10 years): foreign income/gains tax-free, even if remitted.

• After 4 years: full UK tax on worldwide income, gains, and estates.

• No 15/20 year buffer anymore. Exposure to IHT comes much faster.

• Transitional relief for existing non-doms: can remit foreign wealth at a reduced tax rate (around 12%) for a limited time.

---

Step 5: What Happens to Existing Non-Doms?

For those already living in the UK in April 2025:

• If they’ve been here more than 15 years, they are already deemed domiciled and taxed worldwide. Nothing changes.

• If they’ve been here less than 15 years (say 5–10 years):

  • They lose the old 15-year buffer.

  • They will not keep the old system; instead, they are moved into the new regime.

  • No 4-year grace period (as they’ve already lived in the UK longer).

  • They face worldwide taxation and IHT exposure sooner, although transitional relief allows them to remit funds at a reduced rate temporarily.

---

Step 6: Why Wealthy Families Are Leaving the UK

The reasons are clear:

1. Inheritance Tax at 40% is one of the highest globally.

2. Loss of Non-Dom Benefits — old advantages have gone.

3. Uncertainty — frequent changes make planning difficult.

4. Better Options Abroad — countries like Monaco, Switzerland, and Dubai offer lower or no inheritance tax.

---

Step 7: Alternatives Abroad

Popular destinations include:

• Monaco & Dubai: No personal income tax, no IHT.

• Switzerland: Agreements for wealthy residents.

• Portugal: Non-Habitual Resident scheme with reduced tax.

• Italy: Flat lump-sum annual tax for foreign nationals.

---

Conclusion

The UK’s tax landscape is shifting. The new four-year rule may attract some newcomers, but in the long run, worldwide tax and inheritance tax make it unattractive.

For existing non-doms, transitional relief offers a temporary advantage, but the overall direction is clear: the UK is no longer the haven it once was. Unless reforms happen, wealthy families will continue to move to more tax-friendly countries.

---

❓ Question and Answer Section

Q1: What is the difference between doms and non-doms?
Doms are tied to the UK and taxed on worldwide income and wealth. Non-doms are tied to another country and historically avoided UK tax on overseas wealth.

Q2: What happens under the new four-year rule?
New arrivals can bring in overseas income and gains tax-free for their first four years, if they haven’t lived in the UK in the past 10 years.

Q3: What happens after four years?
Worldwide income, gains, and estates are taxed as if fully UK domiciled.

Q4: What about people already in the UK?
They are automatically switched into the new system in April 2025. Old benefits end. Transitional relief applies, allowing them to remit funds at a reduced rate for a limited period.

Q5: I’ve been in the UK for just over 5 years — what happens to me?

• Under old rules, you wouldn’t be deemed domiciled until year 15.

• Under new rules, you lose that buffer.

• You don’t get the 4-year grace period (since you’ve already been here longer).

• You’ll face worldwide taxation and IHT exposure much earlier.

Q6: Why is inheritance tax such a big issue?
At 40%, it can cut millions from estates, unlike countries where no IHT exists.

Q7: Which countries are better alternatives?
Monaco, Dubai, Switzerland, and Portugal are favourites due to low or zero inheritance tax and stable rules.

📞 Written by etaxfiling.co.uk

• etaxfiling.co.uk is a leading UK tax advisory platform.
• We specialise in inheritance tax, non-dom rules, and international tax planning.
• Our team supports individuals, families, and businesses with clear, proactive guidance.
• From HMRC enquiries to long-term wealth strategies, we provide practical solutions tailored to every client.