Navigating UK Non-Dom Rule Changes: Why Ireland is the best location?

Introduction:

In the ever-evolving landscape of international taxation, potential changes to UK non-domicile rules have sparked a ripple effect, prompting the wealthy elite to explore alternative destinations for tax residency. A noteworthy consideration emerging from these developments is the increasing interest in Ireland as a residence destination for those seeking favorable tax environments.

The UK is planning to abolish the "non-dom" (non-domiciled) tax status in April 2025. This change is expected to significantly impact individuals currently benefiting from this status. Here are the key aspects of the changes that might affect their residency:

1. Abolition of Non-Dom Status: The primary change is the complete abolition of the non-dom tax regime. Previously, non-doms could benefit from favorable tax treatment on their foreign income and gains. This will no longer be the case, and all UK non-dom residents will be taxed on their global income and gains.

2. Tax Residency Rules: The shift will create a system based purely on tax residency. This means that individuals will need to assess their residency status under the statutory residence test, which considers factors like time spent in the UK, connections to the UK, and their overseas ties.

3. Remittance Basis: The remittance basis of taxation, which allowed non-doms to pay tax on UK income while deferring tax on foreign income until it was brought into the UK, will be removed. Non-doms will now be taxed on their worldwide income on an arising basis, similar to UK-domiciled residents.

4. Wealth Planning and Structuring: Individuals affected by these changes will need to review and possibly restructure their financial and wealth planning strategies. Trusts, offshore entities, and other tax-efficient structures previously utilised by non-doms may require significant adjustments or may no longer be viable.

    

The proposed non-dom rule changes in the UK will affect different groups in various ways. Here's who will be affected by these changes:

• Non-doms in the UK for over four years as of 6 April 2025:

  1. Subject to UK tax on worldwide income and gains.

  2. Those in the UK for less than four years may qualify for the four-year Foreign Income and Gains (FIG) regime, but previous years of UK residence will be deducted.

• Non-doms resident in the UK for more than 10 years:

  1. Worldwide assets will fall within the scope of Inheritance Tax (IHT) from 6 April 2025.

  2. Individuals with trusts in this category will likely face changes.

• UK residents already deemed domiciled:

  1. The current three-year tail rule for IHT if leaving the UK will increase to 10 years.

  2. Changes will also affect trusts settled before becoming deemed domiciled.

  3. The Transitional Relief Fund (TRF) may allow bringing in previously unremitted income and gains at a preferential 12% rate.

• New UK residents after 6 April 2025:

  1. Individuals not resident in the previous 10 years will qualify for the FIG regime.

  2. Exempt from UK tax on foreign income and gains for four years, including distributions from trusts.

Why Ireland?

With its stable economy, attractive tax incentives, and high quality of life, Ireland is a compelling choice for those considering a move.

Let's explore the key factors that make Ireland an appealing destination:

Favorable Tax Regime:

Ireland boasts a transparent and business-friendly tax system, making it an attractive option for individuals seeking to optimise their tax liabilities.

• Remittance basis: Ireland taxes non-domiciled individuals on a remittance basis. Foreign income and gains are not taxed in Ireland if the funds are not remitted to Ireland. There are some very limited exceptions to these.

• Similarity to the UK: Ireland’s non-domicile tax regime is broadly similar to the non-domicile system in place in the UK. The main difference is that Ireland does not have a deemed domicile rule. Non-domicile status can continue indefinitely.

• Inheritance/gift tax: For the first 5 years of residency, Irish inheritance tax would not be chargeable on foreign assets either inherited or gifted to/from a non-domiciled individual. Planning can help mitigate any liability beyond this timeframe.

• Use of Irish corporation: For any Irish source income such as consultancy type income, it's possible to shelter active income by operating through an Irish company. The standard corporation tax rate for trading income is 12.5%

• Double Tax Treaties: Ireland has signed comprehensive Double Taxation Agreements (DTAs) with 76 countries; 74 are in effect. This will potentially benefit a lot of people thinking of residing in Ireland. 

Residency Benefits:

The residency rules in Ireland offer clarity and flexibility, providing individuals with a clear path to becoming tax residents.

• Clear Criteria: Criteria remain well-defined, but consider potential changes announced in Budget 2024 regarding the Immigrant Investor Programme (IIP).

• Fast-Track Options: While the IIP is undergoing revisions, other programs like Start-Up Visa and Employment Permit offer pathways.

• Tax Advantages: Potential benefits, especially for non-doms and returning emigrants, might be affected by Budget 2024 proposals. Keep an eye on updates.

• EU Membership: Ireland remains an EU member with visa-free Schengen access.

• Path to Citizenship: The residency timeline for citizenship application remains the same.

Note: The details concerning tax benefits and residency programs might change based on finalised Budget 2024 measures. It's crucial to stay updated.

Global Connectivity:

With its strategic location and excellent global connectivity, Ireland serves as a bridge between the UK and the rest of Europe, facilitating international business and travel.

• Major Airport: Dublin Airport continues to expand its network, with potential new direct flights in the pipeline.

• Seaports: Strategic location and connections remain strong.

• EU Membership: Continued membership ensures free movement benefits.

• English-Speaking: English remains the primary language of business and education.

Quality of Life:

Ireland is renowned for its high quality of life, offering a unique blend of vibrant urban centres and serene landscapes.

• High Living Standards: Healthcare, education, and infrastructure remain at high levels.

• Safe and Secure: Crime rates remain low, contributing to a peaceful society.

• Vibrant Culture: Rich history, diverse cultural offerings, and friendly people continue to attract residents.

• Natural Beauty: Stunning landscapes offer a unique recreational environment.

• Strong Economy: The economy continues to show resilience and growth, fostering job opportunities. As stated by Ireland's Finance Minister recently, Ireland's economy will remain strong in 2024 as inflationary measures ease.

Considerations for Prospective Residents:

For those in the UK contemplating a move to Ireland, careful planning is essential. Here are some key considerations:

1. Tax Planning:

   • Work with financial advisors and tax experts like Nathan Trust to develop a comprehensive tax strategy that aligns with your financial goals.

2. Legal Requirements:

   • Familiarise yourself with Ireland's residency and immigration requirements to ensure a smooth transition.

3. Financial Infrastructure:

   • Explore the financial infrastructure in Ireland, including banking and investment opportunities, to seamlessly integrate into the local economy.

Conclusion:

As the landscape of global taxation transforms, individuals seek new opportunities to secure their financial future. With its welcoming environment and favourable tax regime, Ireland stands as an attractive option for those navigating the changes in UK non-domicile rules. Ireland is a common law jurisdiction and our legal system is broadly similar to the UK.

For those considering the leap across the Irish Sea, the Emerald Isle beckons with promises of financial stability and a high quality of life. In the coming months, it will be interesting to observe how this trend unfolds and the impact it may have on the international residency landscape. Get in touch with our team below to navigate and plan your move to Ireland. 

Suggested read:  Ireland non-domiciled tax – 16 things you need to know