The Chancellor confirmed the abolition of the UK’s current tax regime for non-UK domiciled individuals (“non-doms”) in her first Budget on 30 October. The proposals which were put forward by the previous government are largely going to take effect but some changes have been made and we now have draft legislation.
The current rules
Broadly, the non-dom regime is applicable to UK resident individuals whose ‘permanent home’ is overseas.
Non-doms (who are not deemed UK domiciled for tax purposes) are able to elect to be taxed on the remittance basis. This means that they only pay UK tax on their overseas income and gains which are “remitted” to the UK; they do not pay tax on their unremitted foreign income and gains. Once they have been resident for 7 years, then a charge applies to access the remittance basis of taxation. Furthermore, non-doms are generally only be subject to UK Inheritance Tax (IHT) on their UK situs assets; their overseas assets are outside the scope of UK IHT.
The changes from April 2025
With effect from 6 April 2025, the non-dom regime will be abolished and replaced with a new regime based exclusively upon residence. The concept of residency has been around for many years and, since April 2013, has been determined for each tax year by the Statutory Residence Test.
4-year foreign income and gains (FIG) regime
On arrival in the UK, all individuals who have been non-UK resident for at least 10 consecutive tax years will be able to opt into a new FIG regime during their first 4 tax years of residence. The regime will also be available to individuals who have been tax resident for fewer than 4 years as at 6 April 2024 (following 10 consecutive years of non-residence) for the remainder of their first 4 tax years of residence.
The FIG regime will provide 100% tax relief on most types of foreign income and gains for eligible individuals in their first 4 years of tax residence. This will include income arising in settlor-interested trusts. Foreign earnings are not eligible for FIG Relief, although they may be eligible for Overseas Workday Relief.
Eligible individuals will need to claim FIG relief on their Self-Assessment Tax Return for each qualifying tax year and quantify the amount of income and/or gains for which relief is being claimed.
Under the new regime, individuals will not be taxed on their remittances of FIG arising post 5 April 2025.
Anyone resident in the UK for more than 4 tax years will be taxed on their worldwide income.
Transitional rules
Individuals who are UK resident and have previously been taxed on the remittance basis will still be subject to tax upon the remittance of previously excluded income and gains. However, those individuals may be able to benefit from the following transitional measures:
- Temporary repatriation facility (TRF) – enabling individuals to pay tax on their previously unremitted FIG (under the remittance basis regime) at the following reduced rates:
- 2025/26 tax year – 12%
- 2026/27 tax year – 12%
- 2027/28 tax year – 15%
The TRF charge will arise on “designated amounts”; there is no requirement for these amounts to be actually remitted in the relevant tax year.
The relief will also be available on distributions of FIG from offshore trusts within the three years.
- Capital Gains Tax rebasing – individuals who do not benefit from FIG relief will be able to rebase foreign assets they held on 5 April 2017 to their value at that date when they dispose of them on or after 6 April 2025. This is subject to various conditions.
Inheritance Tax
From 6 April 2025, an individual will become liable to UK IHT on their worldwide assets once they have been UK resident for at least 10 of the immediately preceding 20 tax years.
This will not only impact individuals who are currently in the UK (and have been for the previous 10 years), but also those who have recently left the UK, having been UK resident for a number of years prior.
If you want to discuss how the Budget changes will impact you, do get in touch.
