End of the UK’s 200-Year Non-Dom Regime
The UK’s historic non-dom tax regime, a cornerstone of its tax landscape for over 200 years, is set to be abolished in April 2025. The regime will be replaced with a new “residence-based scheme with internationally competitive arrangements,” as announced by Chancellor Rachel Reeves in the 2025 UK Budget. This significant shift eliminates the concept of domicile from the UK tax system, focusing instead on a model for individuals residing temporarily in the UK.
What is Non-Dom Status?
Historically, the non-dom regime allowed UK residents with a permanent home outside the UK to benefit from the ‘remittance basis,’ exempting foreign income and gains (FIG) from UK tax unless remitted to the UK. The system also protected non-UK assets from Inheritance Tax. Several reforms have adjusted the rules over time, including a 2017 change introducing a 15-year cap on non-dom benefits.
Key Changes in 2025: Introducing a Residence-Based Scheme
Starting April 6, 2025, the UK’s non-dom tax regime will be replaced by a residence-based test. Under this new framework, individuals who meet specific conditions can avoid tax on FIG and distributions from non-resident trusts for up to four years. These benefits come with trade-offs, as participants will forfeit personal allowances and annual CGT exempt amounts. The regime will only be available to individuals who have been non-UK residents for the previous ten tax years.
Transitional Provisions and Relief for Current Non-Doms
For existing non-dom residents, some transitional reliefs will ease the shift, though these are less generous than those previously proposed. Additionally, the UK government plans to rebase certain foreign capital assets and introduce a Temporary Repatriation Facility (TRF) for FIG accrued before April 2025. This facility may offer favourable tax rates, allowing former non-dom residents to repatriate pre-2025 FIG without additional charges.
Malta: A Potential New Destination for Former UK Non-Doms
As the UK’s non-dom regime phases out, affected individuals may look for alternative jurisdictions with attractive tax environments. Malta, with its own favourable tax advantages, stands out as a strong candidate. The Maltese non-dom regime and competitive tax incentives make it an appealing option for investors considering a relocation from London.
Malta’s Non-Dom Regime: A Competitive Edge
Malta’s tax regime offers a particularly attractive option for individuals impacted by the UK’s changes to non-dom status. Under Malta’s tax system, individuals who are ordinarily resident but not domiciled in Malta are only taxed on income earned in Malta and on foreign income remitted to Malta. This means non-domiciled residents in Malta are not taxed on foreign income that is not brought into the country, nor on capital gains arising outside Malta, regardless of whether they are remitted.
However, persons married to individuals who are both ordinarily resident and domiciled in Malta are subject to tax on a worldwide basis, rather than on a source and remittance basis. Additionally, non-resident individuals are only taxed on income and chargeable gains arising within Malta.
Income in Malta is assessed on a calendar-year basis, with taxes filed and payable in the year following the income year. Malta’s favorable tax treatment for non-domiciled residents could be a strong draw for former UK non-doms seeking an advantageous tax environment, providing a unique opportunity for Malta to attract high-net-worth individuals looking to transition from the UK.
