Writing for Taxation magazine, Private Client Tax Director Sharlene Rowley explores the reforms for non-doms (non-UK domiciled individuals) announced in Autumn Budget 2024.
Key points
- The main headline for non-UK domiciled individuals was the abolition of the remittance basis regime and the introduction of a new foreign income and gains regime in its place.
- Remittance basis users have historically been required to keep detailed records of different categories of their income and gains.
- The new FIG regime is available to individuals in their first four tax years of residence, provided they have not been resident in any of the ten years prior to arrival.
- To ease the initial impact for affected individuals, a number of transitional reliefs will be introduced.
- Naturally, there will be some winners and some losers as a result of these changes.
Doom and gloom?
After a long summer of uncertainty and speculation surrounding the so-called ‘non-dom reforms’, the subject was only briefly mentioned in the chancellor’s autumn Budget speech on 30 October 2024. Instead, it was left to the Red Book and other documents published on Budget day to reveal the long-awaited details of the proposed changes.
The main headline for non-UK domiciled individuals was the abolition of the remittance basis regime and the introduction of a new foreign income and gains (FIG) regime in its place. This was hardly a surprise, since the concept had been initially proposed in March 2024 by the then-government, and the idea was all but confirmed by the new government post-election. The autumn Budget clarified the finer details of the regime and transitional reliefs.
This article provides a summary of the key changes taking effect from 6 April 2025 and discusses the expected impact for affected individuals.
Out with the old
As a reminder, the current remittance basis regime, which will be abolished from 6 April 2025, is available to individuals for up to 15 tax years of residence, provided they are considered non-UK domiciled throughout. A claim shelters an individual’s foreign income and gains from UK taxation, provided they are kept offshore indefinitely.
For most remittance basis users, an annual charge of £30,000 is payable once the individual has been resident for seven of the previous nine tax years, increasing to £60,000 a year once resident for 12 of the previous 14 tax years. In addition, a remittance basis claim results in the loss of an individual’s personal allowance and annual capital gains tax (CGT) exemption in most cases.
Foreign income and gains subject to the remittance basis also trigger a further UK tax charge if ever remitted to the UK. This means that remittance basis users have historically been required to keep detailed records of different categories of their income and gains and exercise caution around any remittances to the UK.
New FIG regime
The new FIG regime is available to individuals in their first four tax years of residence, provided they have not been resident in any of the ten years prior to arrival. In theory, the FIG regime appears much less attractive than the remittance basis, due to this shorter timeframe. However, the new FIG regime comes with additional advantages.
From 6 April 2025, eligible individuals will be able to claim 100% relief from UK tax on their foreign income and capital gains and they can bring those income/gains to the UK without any further tax consequences. This means no complex arrangements of multiple accounts or segregation of funds will be needed – at least as far as post-6 April 2025 funds are concerned. Note however that a remittance out of pre-6 April 2025 income and gains that have historically been subject to a remittance basis claim may be subject to a tax charge under the old rules. This point aside, the reduced complexity going forward will be a welcome change for many.
The FIG regime also allows an eligible individual to have complete flexibility over which element(s) of their foreign income and/or capital gains they would like to claim relief on. On the downside, an individual must declare details of their worldwide income and gains on their UK tax return, even if relief is claimed in full – an administrative burden which was not required previously with a remittance basis claim. Like the remittance basis, a claim for the FIG regime will result in the loss of an individual’s personal allowance and annual CGT exemption.
There is a surprising opportunity here for British expats who left the UK more than ten years ago. They would not have been eligible for the remittance basis historically, but could qualify for the FIG regime, should they return to the UK.
Loss of trust protections
Possibly the bigger news for many long-term resident non-doms will be the removal of the trust protections currently available to settlors of non-UK trusts. With effect from 6 April 2025, income and gains arising in both new and existing settlor-interested trusts will be taxed on the settlor personally, unless they qualify for (and make a claim for) the FIG regime.
Happily, pre-April 2025 foreign income and gains will remain protected within the trust, only being exposed to income tax or CGT to the extent they are matched to distributions to UK-resident beneficiaries. Settlors and beneficiaries may be able to extract pre-April 2025 income or gains at a low tax rate using the temporary repatriation facility (see below), if they have previously been a remittance basis user.
Inheritance tax
A new residence-based inheritance tax (IHT) regime will also replace the existing domicile-based system. Broadly, an individual’s foreign assets will be exposed to IHT if they are ‘long-term resident’ (defined as UK resident for ten of the 20 previous tax years) at the date of death or another chargeable event. UK assets will remain subject to IHT regardless of the individual’s residence.
If an individual leaves the UK after being long-term resident, their foreign assets will remain within the scope of IHT for a certain period after leaving. This period ranges from three to ten years, depending on how long they were UK resident, starting at three years for those resident for between ten and 13 years, and increasing by one tax year for each additional year of residence thereafter.
On the face of it, bringing foreign assets into the IHT net at an earlier point will be a worrying change for many. The sting will be felt by those who have been resident for between ten and 15 years, who may have been planning to leave before becoming deemed domiciled at 15 years. Put into context however, the three, four or five-year tail that would apply to this category of individuals is not dissimilar to the current position for those who are deemed domiciled under current rules (already subject to IHT on their foreign assets and would need to leave the UK for more than five years to reset their clock for IHT purposes).
There are transitional rules for non-UK domiciled or deemed domiciled individuals who are non-resident during the 2025-26 tax year, which broadly follow the existing test for deemed domicile.
For assets held in trust, the IHT position will follow that of settlor. If a settlor is long-term resident for IHT purposes, the trust’s assets will be relevant property and subject to ongoing IHT charges at the trust’s ten-year anniversaries and on exits from the trust. Importantly, an exit charge (of up to a maximum of 6%) will arise on the date the settlor ceases to be long-term resident for IHT purposes.
Transitional reliefs
In a bid to ease the initial impact for affected individuals, a number of transitional reliefs will be introduced:
Temporary repatriation facility
The temporary repatriation facility (TRF) will give individuals the chance to bring foreign income and gains, which would otherwise be subject to tax at up to 45% on remittance, to the UK at a reduced tax rate of as little as 12%. From 6 April 2025, an eligible individual will have three tax years (ie until 5 April 2028) to ‘designate’ any amount and pay a TRF charge of 12% (if made by 5 April 2027) or 15% (if made in the year to 5 April 2028).
To be eligible, an individual must have been subject to the remittance basis for at least one tax year prior to 6 April 2025.
This is a golden opportunity for those with mixed funds or complicated account histories to tidy up their overseas affairs and repatriate funds to the UK at an especially low tax rate. Individuals can even ‘designate’ amounts of which the origin is unknown, meaning that a detailed analysis is not required to take advantage of this measure, even in the case of mixed funds.
In addition, settlors and beneficiaries of non-UK trusts will be able to designate pre-6 April 2025 unattributed foreign income and gains within a trust and benefit from the low tax rates, provided the relevant benefit is received by 5 April 2028.
Capital gains tax rebasing
From 6 April 2025, all UK-resident individuals will be subject to CGT on their worldwide capital gains as they arise, unless they qualify for the FIG regime.
As a transitional measure, individuals who have claimed the remittance basis at least once between 2017-18 and 2024-25, and who have never been considered UK-domiciled or deemed domiciled, will have the opportunity to rebase their personally-held foreign assets to market value on 5 April 2017.
To qualify, an asset must have been held on 5 April 2017, sold on or after 6 April 2025, and it must also have been situated outside the UK from 6 March 2024 to 5 April 2025 inclusive.
Any capital gain accrued during the period of ownership prior to 5 April 2017 will effectively fall out of charge. This, in combination with the TRF, may enable repatriation of the asset value to the UK at a minimal effective tax rate.
The reaction – is it all doom and gloom?
If the statistics reported in the mainstream media are to be believed, the initial proposal of these reforms triggered an immediate knee-jerk reaction for a number of non-doms, with many publicly leaving the UK for good. While that might have been the best option for some, the outcome is far from hopeless for those who decided to stay. There are some less drastic yet still attractive options available, which should be carefully considered in light of individual circumstances.
The optimistic among us might also see some potential for the government extending the FIG regime or the transitional reliefs, if the next four years generate enough tax for the new regime to be considered a ‘success’. This might be enough of an attraction for many non-doms to stay (or return to) the UK, even if there are additional strings attached with any extended measures.
One thing that might be agreed by those on both sides of the discussion is that, conceptually, the move to a residence-based regime is welcome as it provides much more certainty for individuals. While some aspects of residence can still be subjective, the position will almost certainly be clearer than it has been while based on domicile. This allows individuals to plan their affairs with a lower risk of challenge or unexpected outcomes.
Naturally, there will be some winners and some losers as a result of these changes. Either way, it will be more important than ever for those impacted to seek appropriate advice specific to their circumstances.
This article was first published in Taxation magazine issue 4965 and is available to subscribers here on the Taxation website.
Our private client tax specialists at BKL and Wilson Wright provide expert advice on IHT and tax-efficient planning for non-doms and their families. Contact us today to find out more about how we can help.