Well, here we are, in the aftermath of what felt like the most eagerly anticipated budget ever (maybe). The sky hasn’t fallen in but there is certainly lots to consider. Back in March 2024 our ‘reform of the non-dom taxation’ blog summarised the changes to the non-dom rules which were proposed by the then Conservative Government. It was largely accepted that Labour would continue with the reform but there were doubts about what the final rules would look like. We consider below the announcements made in the Budget held on 30 October 2024.
By Tom Annat – Senior Tax Manager
New rules – Foreign Income and Gains (FIG regime)
From 6 April 2025, the current non-dom rules will be replaced with a new regime for individuals in their first four years of UK residence (after a period of at least 10 years of non-residence). Qualifying individuals will be able to make a claim to pay no tax on FIG arising during this period. Claim for relief via these rules will need to be made on a Tax Return and the amount of FIG subject to the exemption will need to be quantified.
Individuals claiming relief this way will lose their entitlement to the tax-free personal allowance (currently £12,570) and the capital gains exemption (currently £3,000). The loss of these allowances mirrors the position under the previous ‘remittance basis’ regime.
After the initial four years, individuals will be taxed on their worldwide income and gains in accordance with the normal tax rules for UK residents.
Transitional arrangements
In March 2024, the previous Government proposed a one year 50% reduction in the amount of foreign income which would be taxable for those who had moved from the remittance basis to the arising basis from 6 April 2025 (and were not eligible for the new FIG regime).
This will no longer be introduced. These individuals will be subject to income tax on foreign income from 6 April 2025.
Temporary Repatriation Facility (“TRF”)
Transitional relief will be available for individuals who have previously claimed the remittance basis, and this will also extend to those who are deemed domicile but still retain FIG outside of the UK. For the tax years 2025/26 and 2026/27, a reduced rate of 12% will apply to remittances of pre-6 April 2025 personal FIG.
The rate rises to 15% for the 2027/28 tax year. Funds will not actually need to be remitted to benefit from the TRF, but they can be designated upfront (creating a tax charge) and remitted later.
Rebasing of assets
Qualifying individuals will have their non-UK situs assets automatically rebased (an election to disapply rebasing can be made) to their market value on 5 April 2017 where the asset is disposed of on or after 6 April 2025. To qualify:
- The individual must have not been UK domiciled or deemed UK domiciled at any time prior to 6 April 2025
- The individual must have claimed the remittance basis for at least one year between 2017/18 and 2024/25.
- The asset must have been situated outside of the UK at all times between 6 March 2024 and 5 April 2025 (limited exceptions may apply).
Inheritance Tax (IHT) – Long Term Resident rule replaces domicile concept
The scope of UK IHT on non-UK situs assets had previously been linked to domicile status. That is set to change with the concept of a “Long Term Resident” being introduced from 6 April 2025. Those who have been resident for at least 10 out of the last 20 tax years will fall within this regime and their worldwide estate will be subject to UK IHT.
Individuals ceasing to be UK resident, will continue to be within the scope of UK IHT on non-UK assets. Individuals who had been resident for 10 to 13 years will fall outside the scope of UK IHT on non-UK assets after three tax years of non-residence (reverting to the 10/20 rule if they later return). This increases after each additional year of tax residence. Once an individual has been resident for 20 years, they will be subject to UK IHT on their worldwide estate for 10 years after leaving the UK.
It is notable that a residence-based system will provide greater certainty for individuals who consider that they have acquired a non-UK domicile of choice. The changes will also affect all individuals and not just those who are non-UK domicile.
These new rules represent a significant change from the previous regime and will create complexity for existing and future tax planning. It is imperative that professional advice is sought prior to undertaking a course of action or a particular transaction.
If you would like advice on tax planning, please do get in touch with our non-dom tax specialists.
