The current tax treatment for UK resident non-domiciled individuals (non-doms) is to be abolished from 6 April 2025, the Labour government has confirmed.
In a policy paper published at the end of July, the government said that it will “remove the outdated concept of domicile status from the tax system” and replace it with a new residence-based system.
The non-dom regime has formed a part of the UK’s tax system for more than 200 years. It enables certain individuals who spend enough time in the country to be tax resident, but whose permanent home for tax purposes is outside of the UK, to benefit from the ‘remittance basis’.
This means non-doms only pay UK tax on the money they earn in the UK and exempts their foreign income and gains (FIG) from UK taxation unless that money is paid into a UK bank account.
On 29 July 2024 the Labour government announced that it was “committed to addressing unfairness in the tax system, so that everyone who is long-term resident in the UK pays their taxes here”.
The new residence-based regime will be “internationally competitive and focused on attracting the best talent and investment to the UK,” said the government.
Latest figures from HM Revenue & Customs reveal that there were 74,000 individuals claiming non-domiciled taxpayer status in the UK in the tax year ending 2023, up from 68,900 the previous year.
Key changes that will affect non-doms due to be introduced in April 2025 include:
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New Foreign Income and Gains (FIG) Rules.
The government has pledged to implement the four-year FIG regime announced by the previous government in this year’s Spring Budget.
From 6 April 2025, the current remittance-based regime will be replaced with a residence-based system. Under the new system, new arrivals to the UK will receive 100% relief on FIG in their first four years of tax residence, provided they have not been UK tax resident in any of the ten consecutive years prior to their arrival.
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Settlor-interested Trusts.
Protection from tax on income and gains arising within settlor-interested trust structures will no longer be available from 6 April 2025 for non-domiciled and deemed domiciled individuals who do not qualify for the four-year FIG regime.
The government has also stated that it intends to conduct a review of offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation, to modernise the rules and ensure they are fit for purpose. However, it is not expected that this review will prompt any changes before the start of the 2026/2027 tax year.
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Transitional arrangements for current non-doms.
UK resident individuals who are ineligible for the four-year FIG regime (or who choose not to make a claim for a tax year) will be subject to Capital Gains Tax (CGT) on foreign gains. Certain individuals will be subject to a rebasing of foreign capital assets. More details are expected in the Autumn Budget on 30 October 2024.
A new Temporary Repatriation Facility (TRF) will be available for individuals who have been taxed on the remittance basis, with individuals who have previously claimed the remittance basis able to remit FIG that arose prior to 6 April 2025 and pay a reduced tax rate on the remittance for a limited time after the remittance basis has ended.
The government said that the rate and the length of time that the TRF will be available “will be set to make use as attractive as possible”.
Further information is due to be announced in October’s Budget.
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Inheritance tax changes.
The new residence-based scheme will come into force from 6 April 2025 and affect the scope of property brought into UK inheritance tax (IHT) for individuals and Trusts.
Individuals who have been resident in the UK for ten years will be subject to IHT while they remain resident and for a further ten years after they leave the UK.
Deaths occurring before the new rules are implemented will be unaffected by the changes and will be charged IHT according to the existing rules.
The government will end the use of Excluded Property Trusts to keep assets out of the scope of IHT.
Read the government’s full policy document here.
While the government’s announcement provides some clarity for UK resident non-doms and those considering their future tax planning strategies, many questions remain.
Non-doms should consider their position at the earliest opportunity to ensure they have the most appropriate tax planning solutions in place ahead of the changes being introduced next year.
Lawyers for Non-UK Domiciled Individuals
At Mucatt Black Graf, a large number of our clients are resident or domiciled outside of the UK or hold interests in overseas Trusts.
UK tax laws for non-doms are complex. Our experienced private wealth team assist to ensure you have the most appropriate structures in place.
We advise non-doms on various legal issues, including:
- Claiming non-dom status.
- UK tax residence.
- Use of the remittance basis.
- Inheritance tax implications.
- Investing in UK property.
- Trusts.
Our Private Wealth offering includes advice on all aspects of estate and succession planning for corporate clients and High-Net-Worth Individuals (HNWIs) and Ultra-High-Net-Worth Individuals (UHNWIs) from the UK and internationally.
For advice on Private Wealth matters please email Muscatt Black Graf on contact@muscattblackgraf.com.
This blog was prepared on 14 August 2024. It is not intended to be advice and should not be relied upon as such.