The Labour government plans to close a loophole that allows people to avoid paying tax on their overseas earnings – a policy that was also promoted by the former Conservative government. What is the status and how does it work?
What is non-domicile status?
A person who is registered as non-domiciled with HM Revenue and Customs is tax resident in the UK but does not have to pay UK tax on income and capital gains earned overseas – including on company stocks or cash made from selling a second home – unless they bring their money into the UK or deposit it into a UK bank account. However, non-doms do still have to pay tax on money earned within the UK.
Who qualifies as a non-dom resident?
A person with non-dom status is someone who lives in the UK and is tax resident here, but who has their permanent home outside the country. They must demonstrate to HMRC that their domicile – at least for tax purposes – is in another country. Usually their domicile will be the country that their father considered their permanent home when they were born, and to which they intend to eventually return, perhaps when they retire.
Because they are tax resident in the UK, non-doms will typically not be tax resident in their country of domicile, and therefore not liable for tax in either country on their worldwide income.
Non-doms have to specifically apply for a tax exemption on foreign income of more than £2,000, meaning it is not an automatic designation for foreign-born residents or non-citizens.
How long does the non-dom tax break last?
After a certain amount of time, non-doms must pay a charge in order to continue sheltering their foreign income from UK tax. Those who have been living in the UK for at least seven of the previous nine tax years must pay £30,000 a year to the government. Those who have lived in the UK for 12 of the previous 14 tax years must pay £60,000 a year. UK residents must pay tax on their worldwide earnings once they have been in the country for 15 of the previous 20 years.
Foreign nationals who are resident in the UK can choose to pay British taxes at any point on their worldwide income and capital gains. They do not have to hold a UK passport to be taxed here.
Why is it controversial?
The rule primarily benefits the very rich, and has allowed those claiming it to avoid paying significant sums to HMRC.
A study by the London School of Economics and the University of Warwick found that more than two-fifths of people who earned £5m or more in 2018 had claimed non-dom status at some point since 1997.
Some of the highest earning non-doms work in the film industry and sport, including famous actors, directors, producers and Premier League football players, according to the report, which also found that 22% of top-earning bankers have benefited from the scheme.
Which big names have claimed UK non-dom status?
Some of the most well-known people who have reportedly claimed non-dom status include Roman Abramovich, the Russian oligarch and former owner of Chelsea football club, now under sanctions, the steel tycoon Lakshmi Mittal and the media baron and Daily Mail owner, Lord Rothermere. Akshata Murthy, the wife of the ex-prime minister and chancellor Rishi Sunak and daughter of Indian IT billionaire NR Narayana Murthy, also claimed non-domiciled status.
Lord Ashcroft, the multimillionaire and former deputy chair of the Conservative party, and the former HSBC boss Stuart Gulliver were also reported to have used the non-dom scheme. The same applied to Sir James Goldsmith and his children, including the Conservative minister and longtime friend of Boris Johnson, Zac Goldsmith.
What have Labour and Conservative governments said about it?
The former chancellor Jeremy Hunt decided in March 2024 to scrap non-dom status, with the changes coming into force by April 2025. Labour, which had already committed to getting rid of the tax break while in opposition, called his decision to adopt its policy on the issue a “desperate move”.
Whitehall sources claim Hunt hurried through a replacement regime that gave the wealthy four years before their overseas income was subject became taxable, despite officials’ advice suggesting five was the minimum not to trigger an exodus of wealthy individuals. This was in order for Hunt to have enough money to fund his pledge on national insurance contributions.
Sources also claim that Reeves has largely copy and pasted this bit of policy before the budget on 30 October, only adding some more stringent conditions by additionally removing inheritance tax loopholes. Going for such a short window for tax residency – four years – versus the current regime of 15 – is an error, they add. The Treasury has said no final decisions on the policy have been made.