What does the pledge mean? 

‘Non-dom’ tax status is part of the rules around the tax UK residents must pay on foreign income if their permanent home or “domicile” (for tax purposes) is outside the UK. 

A non-dom can choose to pay tax on their foreign income or can choose to claim the ‘remittance basis’, meaning they do not have to pay tax on foreign income or capital gains unless it’s brought to the UK (for example if it’s paid into a UK bank account). Non-doms must still pay tax as usual on UK income and assets.

There are charges associated with claiming the remittance basis if you’ve been in the UK for a certain amount of time, and you can only claim it for a maximum of 15 years.

HMRC estimates that in 2021/22 approximately 68,900 people claimed non-dom status in the UK, of whom 37,800 paid tax on the remittance basis.

Labour’s manifesto pledged to “abolish non-dom status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period”.

The party did not set out a timeframe for this commitment in its manifesto, and did not specify exactly what changes would be made to the tax system for people who currently claim non-dom status.

It’s worth noting that the previous government had already announced plans to replace the existing tax rules for non-doms ahead of the election, but these changes were not due to come into force until 6 April 2025.

What progress has been made?

This pledge is expected to be achieved at the start of the next financial year.

On 30 October 2024 Chancellor of the Exchequer Rachel Reeves said in her Budget speech: “We will abolish the non-dom tax regime and remove the outdated concept of domicile from the tax system from April 2025.

“We will introduce a new, residence based scheme with internationally competitive arrangements for those coming to the UK on a temporary basis while closing the loopholes in the scheme.”

The government has subsequently confirmed that it will “remove” the concept of domicile status from the tax system and replace the remittance basis of taxation (which is based on domicile status) with a new tax regime based on residence. The current domicile-based system of Inheritance Tax will also be replaced with a new residence-based system.

These changes are set out in the Finance Bill, which was introduced to the House of Commons on 6 November 2024.

Once passed, the measures will take effect on 6 April 2025.