Changes to non-dom tax regime set to drive foreign sportspeople to leave the UK

Increasing appetite for legislative changes to the non-dom regime has resulted in many affected individuals scrambling for legal and tax certainty — and one group particularly affected by these changes is sportspeople.

Here, Huzaifa Moosa provides an insight into what the proposed changes to the non-dom regime are and the impact they could have on sportspeople.

What is the non-dom regime?

Domicile is a key legal concept in the UK tax systems. A person’s domicile refers to their permanent home. This is distinct from their residence or nationality. 

There are three types of domicile:

• Domicile of origin (usually acquired at birth).
• Domicile of dependence (based on one’s parents, where one is a minor).
• Domicile of choice (established by moving to a new country and intending to remain there permanently or indefinitely).

The non-dom regime applies to individuals who are tax resident in the UK (they live in the UK for enough time to be classed by HMRC as ‘resident’) but aren’t domiciled in the UK (they don’t plan on staying here indefinitely). Typically, these individuals have sufficient personal, financial and familial ties to another jurisdiction, which they consider to be their domicile. 

The non-dom regime is a recognised tax status in the UK that offers favourable tax treatment. The logic behind this is to encourage wealthy individuals who have significant income and assets abroad to move to the UK and contribute to its economy. 

However, there has been much criticism of the lack of fairness and equity in this system. Sweeping changes to the tax rules for non-domiciled UK tax residents (non-doms) were announced by the previous (Conservative) Government in its 2024 Spring Budget. Even more radical reforms were proposed by Labour as part of its manifesto commitments ahead of the election. 

Proposed changes

Remittance basis vs residence-based test

Currently, individuals can choose to be taxed on a ‘remittance basis’ rather than the ‘arising basis’. The latter refers to UK tax being payable on worldwide income and gains regardless of whether those proceeds are brought into the UK. The former allows non-doms to only be taxed on their UK income and gains, with any foreign income and gains only being taxed if they’re brought (or remitted) to the UK. To benefit from the remittance basis after living in the UK for a certain period, non-doms must pay an annual charge.

The remittance basis regime has some clear benefits for sportspeople. Many hold assets — like property (which they may rent out while working in the UK) and businesses (like image rights companies or entities that hold commercial and sponsor arrangements) — overseas. Oftentimes, these overseas assets will be held in jurisdictions with a lower tax burden than the UK. The remittance basis restricts the amount of UK personal tax that’s payable on those assets, encouraging wealthy sportspeople to move to the UK.

However, the previous Government announced that from April 2025 the remittance basis regime will be replaced with a new ‘Foreign Income and Gains’ (FIG) regime. Effectively, where an individual has been a non-UK tax resident for the previous ten tax years, they have a four-year window where foreign income and gains (even if they’re brought into the UK) will not be subject to UK tax. While opting into this system will result in them losing their personal allowance for UK income and annual exemptions for UK gains, given the level of wealth involved for many non-doms this is unlikely to be an issue. After those four years are up, the arising basis will apply. 

Arguably a more generous system than what already exists, this may be an attractive model for foreign sportspeople with significant overseas assets who hope to join a UK-based club or compete in the UK for up to four years, as foreign income (even if brought into the UK) isn’t subject to UK tax. 

However, once those four years are up, the sportsperson must make a decision. The tax implications for staying longer could be stark, which may result in more foreign sportspeople only staying in the UK for shorter stints.

Those who fail to qualify for the new FIG regime — such as foreign sportspeople who have been UK tax resident for some time — will move to the arising basis regime on 6 April 2025. This may mean that their tax burden will increase drastically overnight. Although the previous Government suggested implementing a transition period for the 2025/26 tax year where only 50% of foreign income is taxed, the Labour Party won’t provide that concession. 

This may be a significant driver in foreign sportspeople based in the UK looking to move overseas.

Overseas workday relief

Non-doms — including foreign sportspeople based in the UK — have been able to claim ‘overseas workday relief’ for the first three years of their UK tax residence. This allows them to reduce UK tax liability on remuneration (including bonuses and prize money) for work done overseas, so long as those funds aren’t remitted to the UK. Elite sportspeople will often perform in the UK and abroad.

Although the full extent of the previous Government’s reforms are yet to be announced, it’s understood that the restrictions on remitting those foreign earnings to the UK will be removed in the first three years. This could be a massive incentive for foreign sportspeople as they can bring their foreign prize money, appearance bonuses and sponsorship payments to the UK without fear of it being taxed further. 

Inheritance tax and offshore trusts

Non-doms are generally only subject to UK inheritance tax (IHT) on their UK assets. There has been no indication that this is set to change, other than in relation to offshore trusts.

At present, no tax is charged when non-doms create trusts overseas with overseas assets. If a UK-domiciled person set up a trust overseas, it would be subject to IHT. 

Non-dom offshore trusts will also not be subject to UK income tax and capital gains tax unless they’re remitted to the UK. With many foreign sportspeople settling overseas trusts for the benefit of their families, this provides comfort that they will not be subject to a potentially stricter tax regime by moving to the UK.

However, from April 2025 the income and gains from these offshore trusts will fall within the FIG regime. This means that unless the four-year window applies, the income and gains will be taxed in the UK on an arising basis. So even if that income (or gains) isn’t brought into the UK, it will still be subject to UK tax. This again means that foreign sportspeople may only be inclined to move to the UK for a short period of time.

The Labour Party has proposed to bring offshore trusts set up by non-doms within the scope of IHT. This may mean those offshore trusts have to pay UK tax any time that capital is paid to a beneficiary, on ten-year anniversaries and where assets are added to the trust. 

Depending on the level of wealth within these trusts, this could be a significant disincentive for foreign sport stars looking to the UK as the next step in their careers. 

Talk to us

Our award-winning private client law team is on-hand to discuss how these changes to the non-dom regime could affect you, your family and your existing tax and financial arrangements.

Whether you’re looking to understand your legal position and potential tax implications or discuss what protections can be put in place under the new rules, we can help you to plan effectively for your future.

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