This week’s spring budget revealed that the current non-dom rules would be changed, so how could this affect people investing in UK property?
In Chancellor Jeremy Hunt’s spring budget, announced on Wednesday this week, one of the big changes he revealed was in the way those living in the UK but with permanent homes elsewhere – also known as non-doms – would be treated for tax purposes.
Under existing non-dom rules, an individual with non-dom status does not have to pay UK tax on overseas income or gains, unless the income or gains are brought to the UK. They were also not liable for inheritance tax on the value of their foreign assets, unless they became “domiciled” in the UK.
The current non-dom rules also mean that those who do not pay UK tax on their overseas earnings must pay a charge of £30,000 after seven years in the UK, and £60,000 after 12 years in the UK, in order to continue to be exempt from UK tax on foreign earnings.
However, once you have been a UK resident for 15 out of the previous 20 years, the current rules mean you can no longer claim non-dom status.
What are the new non-dom rules?
As Jeremy Hunt announced this week, the non-dom rules will be changing from April 2025. From this point, people who move to the UK from overseas will have four years before they need to start paying UK tax on their overseas income or gains.
Once this initial four-year period has lapsed, they will then pay the same tax as UK residents. However, there will be a two-year transition period for those who already have non-dom status.
Jeremy Hunt said: “We will abolish the current tax system for non-doms, get rid of the dated concept of non-doms and we will replace the non-dom regime with a modern simpler system from April 2025 based on residency. Under the new regime, they will not have to pay taxes on non-UK assets for the first four years.
“There will be transitional arrangements for those benefiting from the current regime with a two-year transition period when they will be encouraged to bring assets onshore.
“The changes will raise £2.7bn by the end of the forecast period.”
Will foreign property buyers be affected?
Overseas investors in UK property who continue to live abroad will not be affected by the rule change – it will only affect those who move to the UK, and remain for four or more years. Therefore, it is something for Hong Kong nationals to be aware of, who may use the British National (Overseas) visa route to move to the UK.
For those who invest in and make money on property in the UK, regardless of where they live, they will normally have to pay tax to HMRC in the UK on any rental income or capital gains. The new non-dom rules do not change this aspect of taxation.
Commenting on whether the changes could dampen the appetite of foreign investors in UK property, Parminder Sidhu, partner and head of residential property at Wedlake Bell, believes the new non-dom rules shouldn’t have much of an impact.
He said: “We do not expect the announcement to significantly deter foreign buyers. The market for foreign investors in London property is strong with lots of interest especially from the US and the Middle East.
“The adjustments to the non-dom tax regime may have a dampening effect on foreign investment in the London property market, as existing and potential non-domiciled individuals consider their options, but the fact is that past changes – such as ATED, or the UK’s exit from the EU – did not cause a mass exodus of these individuals from the UK.
“Foreign investors and non-domiciles are attracted to London as one of the world’s most vibrant, multicultural cities with excellent jobs, schools, and culture, and are undeterred by the UKs political scene.
“If the attitude towards non-domiciles continues to harden over the next few years, then we may see a growing reluctance from overseas buyers to invest in London, likely at a detriment to the city’s reputation as an international capital.”
If you’re an overseas resident or a non-dom looking to invest in property in the UK, let BuyAssociation help you find the ideal property investment opportunity. Get in touch today.
