Abolishing non-dom taxation in UK. A further boost for the Italian neo-res regime?

In recent weeks, the UK Chancellor has announced, as part of the March 2024 Budget, a significant overhaul in the UK's taxation regime for UK resident non-domiciled individuals (so called "non-doms"), indeed scrapping the regime from 6 April 2025. 

According to the latest figures from HM Revenue and Customs, 68,800 people claimed non-dom status in 2022. These include famous actors and Premier League football players but also bankers, lawyers, consultants, private equity executives and so on. 

A "non-dom" is a resident in UK, and tax resident there, but his/her permanent home - or domicile - for tax purposes is based outside the UK. A non-dom only pays UK tax on the income and capital gains earned in the UK, effectively exempting foreign income and gains. Foreign income is only taxed in the UK if it is brought back (i.e. remitted) to the UK, i.e. when their money is bringing into the UK or deposit it into a UK bank account. This is known as the “remittance basis” of taxation. 

In addition, non-doms also have their foreign assets exempt from inheritance tax. 

Taking into account the policy paper published by the HM Treasury on March 2024, if the proposal of change will be approved, the tax year 2024/25 will be the last year in which a remittance basis claim can be made. 

Indeed, from April 2025, the “non dom” regime will be deeply modified: as a matter of fact, new arrivals to the UK will benefit from 100 per cent UK tax relief on foreign income and gains for the first 4 years that they are tax resident. 

As a main consequence of the reform, under the new system anyone who has been tax resident in the UK for more than four years will pay UK tax on any foreign income and gains, as is the case for other UK residents. 

Given that the announced changes are extremely relevant, the government announced targeted transitional arrangements for existing non doms. 

These significant changes could prompt some wealthy individuals to look at alternative options in other countries. In this perspective the Italian tax regime for new residents, regulated by the article 24-bis of the Italian Income Tax Code, could be an appealing possibility. 

The aforementioned regime is dedicated to individuals (regardless of their nationality or domicile) who have been non-tax resident in Italy for at least 9 years out of the 10 years preceding their transfer to Italy. 

Under this regime, a new Italian tax resident can apply an annual tax payment of € 100,000 as a substitute tax to their foreign earnings and gains, in lieu of the Italian Income Tax. Only income generated abroad is subject to the substitute tax, while income generated in Italy is taxed according to the ordinary rules. Capital gains resulting from the sale of qualified participations (held in companies and non-resident entities) made during the first 5 tax years of application of the tax incentive cannot be subject to the substitute tax. The incentive regime may be also extended to the family members: in this case, it is required an annual payment of € 25,000 per each member. 

The option is valid for a period of 15 years, without any possibility of extension. 

Those interested in benefiting from the tax regime can submit an advance tax ruling to the Italian Revenue Agency or exercise the option directly in their tax return. In the former case, the Italian Tax Authorities shall respond to the request within 120 days of receipt (without prejudice to the possibility of requesting additional documents), notifying its opinion on the occurrence or non-occurrence of the conditions to benefit from the regime. 

Individuals transferring their tax residence must pay inheritance and donation tax only for properties and assets existing within the Italian territory.

Edited by Silia Francesca Muzzi