Non-dom regime reforms

One of the most high-profile announcements in this year's Budget was the abolition of the UK's current tax regime that applies to UK resident, but non-UK domiciled individuals ("Non-Doms").

In the Chancellor's own words the Government intends to replace it "with a modernised regime that is simpler and fairer", that applies to those newly resident in the UK (irrespective of their domicile). These changes are scheduled to come into effect in the tax year beginning 6 April 2025. Whilst this depends on the Conservative Party winning the next General Election, the Labour Party had already announced plans to abolish the Non-Dom regime if they were to come to power. It is not yet clear whether they would do this by implementing the Budget changes or by proposing their own modified regime.

Do these changes affect employers?

The Non-Dom regime is largely a personal tax regime. Non-Doms typically claim (and benefit) from Non-Dom status, when filing their tax returns for income and capital gains at the end of the tax year.

Having said this, there is a specific regime that applies to Non-Dom employees with overseas duties, known as 'overseas workday relief' ("OWR"). If an employee is eligible for OWR, any employment income relating to non-UK duties (including certain gains made on the exercise of stock options or similar awards over non-UK shares) can remain outside of the UK tax net, provided they are paid into a non-UK bank account and are not brought into (i.e. remitted) to the UK. OWR can currently be claimed for a maximum of 3 tax years. To avoid unnecessary PAYE withholding, employers can agree with HMRC not to deduct PAYE on employment income that qualifies for OWR, which is beneficial for the employee from a cash-flow perspective.

The good news is that OWR will be retained, subject to certain modifications to take account of the wider changes being made. For example, it has been announced that the new OWR will provide relief from income tax for those that opt to use the new regime whether or not the earnings are brought into the UK. As under the current rules, the new OWR will not provide relief from National Insurance contributions (NICs), so any NICs liabilities on these earnings will be determined as usual. We await more details on how OWR will work in practice from 6 April 2025.

Please contact us if you would like more information on OWR. Further details about the current Non-Dom regime and the proposed Budget changes can also be found here.

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