Blowing the whistle on the UK's ‘non-dom’ regime: A case study

The unabridged version of the article will be published in the Sports Law & Taxation June issue.

In the Spring Budget 2024, the UK chancellor recently announced a radical overhaul of the tax system for non-domiciled UK tax residents (typically referred to as 'non-doms') which is due to take effect from 6 April 2025. We have summarised the proposed reforms in our article: UK Budget and the end of the non-dom regime as we know it. Here, as a case study, we will explore how the new rules would apply to foreign Premier League football players living and working in the UK. 

Typical income structures for international footballers

Footballers tend to derive income through their salary, investments and the exploitation of their image rights. 

During the 2023/24 season, Erling Haaland became the highest paid player in the Premier League, earning approximately £865,000 per week from his team Manchester City. 

Although the main source of income for top-performing footballers in the UK comes from their high salaries, they also receive income from other streams, including the licencing of their image rights and sponsorship deals with major brands. One of the forerunners of image rights licencing is David Beckham, who signed an estimated $160m lifetime sponsorship deal with Adidas in 2003. Even after hanging up his boots, Beckham continues to generate immense income from sponsorship deals. 

Players typically invest the wealth they have amassed through employment earnings to generate income long after their footballing career has come to an end. One example of this is Mathieu Flamini, former Arsenal midfielder who co-founded a biochemical company which is now reportedly worth billions. Outside of successful business interests, Premier League players often invest their wages into real estate to build up passive income streams. 

Taking each income stream in turn, we have analysed below the key impacts of the Spring Budget announcement for non-dom footballers in the UK.  

Employment income 

 Remuneration from employment with a Premier League team is UK source income, therefore it will be ordinarily taxable in the UK. Taking Haaland's Manchester City earnings as an example, as an additional rate taxpayer, he will be subject to income tax on the vast majority of his employment earnings at 45% (equating to approximately £20 million of income tax per year).  

In the first three years of UK tax residence, it has been possible for footballers to claim overseas workday relief ('OWR') on remuneration received for duties performed outside the UK. This includes time spent playing in other countries during international fixtures, the World Cup or the Euros and training or touring overseas. For players who have recently moved to the UK and become UK tax resident, OWR represents an attractive method of minimising their extremely high UK tax liability for time spent abroad.  However, given that the bulk of a Premier League player's time is spent in the UK the benefits are relatively limited.

 Although the taxation of UK source income is expected to remain largely unchanged under the new regime, the government has announced reforms to OWR with effect from April 2025. The specific eligibility criteria for the reformed OWR regime are yet to be revealed, it is proposed that new arrivals in the UK will still be able to benefit from OWR for the first three years of their UK tax residence. Haaland commenced his English Premier League career in July 2022 (ie during the 2022-23 UK tax year) and so would most likely be within the three-year period of UK tax residence for OWR to apply. By way of comparison, Mohamed Salah has played for Liverpool since 2017, placing him outside the scope of OWR. 

 At present, a key obstacle for OWR is that the remuneration associated with employment overseas must be kept overseas to qualify for the relief - meaning that a portion of a players' club earnings must be paid into a foreign bank account and not remitted to (ie brought into or used in) the UK. Under the new regime, it is proposed that eligible employees will be able to benefit from OWR even if the 'overseas' aspect of their remuneration is remitted into the UK - making the relief more accessible.

Image rights and sponsorship deals

 Another key source of income is the licencing of image rights. The term 'image rights' encompasses any characteristics unique to the player that brands might want to be associated with for commercial or promotional purposes - eg the player's name, face, voice, autograph, or squad number. In practice, a high-profile footballer will incorporate an 'Image Rights Company' and the 'IRC' will enter into a contract with the club for the right to use the player's image rights, both to promote the club and endorse its sponsors. This way the image rights contract falls outside of the player's employment relationship with the club, with a separate negotiation process and separate tax treatment. 

The real benefit of a corporate structure is that IRC income, if properly constituted, will fall within the scope of corporation tax, at a rate of 25%, rather than within the player's personal income tax bracket of up to 45%.  For some time, UK courts have maintained the view that IRCs must be UK tax resident (and therefore within the scope of UK corporation tax), so there is no room for manoeuvring around the UK tax net with offshore structures. As a result, the new rules for non-doms announced in the Spring Budget will have minimal impact on the taxation of IRCs. 

Of course, for the player to extract the income generated by the IRC, they would have to pay themselves a salary or dividend – resulting in income tax or dividend tax charges respectively. Alternatively, if income is left to accumulate in the company and the player subsequently leaves the UK to either return home or play abroad, they could wind up the IRC and receive the proceeds, free of tax entirely, once they are non-UK tax resident, being mindful, however, not to resume UK tax residence too soon, to avoid the application of certain anti-avoidance rules under the 'temporary non-residence' regime.

Foreign Income and gains 

 Many non-domiciled Premier League players invest in foreign assets, such as property or businesses in their home countries. Under the current rules, players with assets abroad can elect to be taxed on the remittance basis of taxation, which means that they only pay UK tax on their UK source income and gains and those foreign income and gains that they bring (or remit) to the UK. This allows them to keep a substantial part of their income and gains outside the UK tax net, provided the funds remain offshore. 

 From 6 April 2025, the government intends to replace the remittance basis with a new Foreign Income and Gains ('FIG') regime. Under the new regime, individuals who have been non-UK tax resident for the previous 10 tax years can elect to be taxed only on their UK source income and gains for a period of four tax years. Those who qualify would not need to be concerned about remittances to the UK, as the FIG regime will not tax foreign income and gains even if they are brought into the UK. Once four years of UK tax residence have passed, the taxpayer can no longer elect for the FIG regime and their worldwide income and gains will fall within the UK tax net, potentially greatly increasing their tax burden. 

For foreign players with significant assets outside the UK, the FIG regime provides an attractive means of joining a UK club for four years, paying UK tax on their UK source income while sheltering their foreign assets from UK taxation. Upon hitting the four-year mark, the player will need to decide whether or not to remain at the UK club or move abroad to keep their foreign assets outside the UK tax net. Unfortunately, foreign players who have been UK tax resident for some time by 5 April 2025 are unlikely to be eligible for the FIG regime and their worldwide assets will automatically be subject to income tax and capital gains tax in the UK – although there are some potentially attractive transitional arrangements to consider. 

Conclusion 

 Navigating the tax implications of the Spring Budget will be a challenge for many individuals – Premier League footballer or not. For some, the replacement of non-dom status might seem too bitter a pill to swallow; for others, the FIG regime might present a helpful simplification of the rules on remittances. 

In any event, we do not expect that the proposed changes will be a significant factor in the thinking of international footballers who have the opportunity to play in the Premier League. Foreign individuals are rarely drawn to the UK for tax reasons; far more beneficial tax regimes are available in jurisdictions like Italy and Saudi Arabia for tax-driven migration – both of which offer lucrative opportunities for footballing talent. 

Top players come to the UK for the opportunity to compete at the highest level of their sport, with international recognition and a chance to play in Champions League to boot. The UK – much like the Premier League – attracts ambitious foreign talent for lifestyle reasons that go beyond the favourability of the tax regime, and the Spring Budget announcements are unlikely to put a stop to that.