Changes to Non-Dom rules in the UK
Alan Rajah
by Alan Rajah
This article has been prepared before the Autumn budget statement on 30 October 2024, with the contents of this article accordingly based on the Spring Budget in March 2024.
End of non-domicile and remittance basis regime
The UK Government is set to lose substantial tax revenue in the event that its proposed new rules for non-doms prompt many wealthy individuals to leave the UK.
The former Chancellor Jeremy Hunt announced the termination of the UK's non-domicile regime and remittance basis of taxation.
Non-domiciled individuals will no longer benefit from tax benefits associated with the remittance basis.
Overview of Budget Proposal
The remittance basis of taxation will cease on 05 April 2025, replaced by a new foreign income and gains (FIG) regime.
Under the new regime, individuals who have been non-resident for ten tax years and then become UK tax residents can bring FIG to the UK free from tax charges for the first four tax years of residence. If an individual moves to the UK in the 2024/25 tax year, they will use up one out of the four years in which they are entitled to remit FIG to the UK.
There will be no tax payable on distributions received from non-resident trusts.
During this period, UK income and gains will be subject to UK tax in the normal way.
On 06 April 2025, individuals who have been non-resident for ten years and UK resident for less than four years, will be able to use the new regime for any tax year of UK residence until the fourth year of residence is completed.
Overseas Workday Relief (OWR) will remain available for the initial three tax years of UK residence but will be contingent upon an employee's residency status and whether they opt for the new FIG regime.
Protection from taxation on income and gains within trust structures will be lifted for current non-domiciled individuals who do not qualify for the new four-year FIG regime.
Any FIG arising in non-resident trust structures from 06 April 2025, onwards will be taxed on an arising basis when the settler or transferer has been resident in the UK for more than four tax years.
Those currently claiming benefits under the remittance basis taxation rules and not eligible for the new four-year FIG regime will pay tax on 50% of foreign income in the tax year ending 05 April 2026.
This reduction applies to foreign income only and does not apply to foreign chargeable gains.
From 06 April 2026, foreign income will be taxed in full on an arising basis.
For foreign capital gains, an individual who does not fall within the four-year FIG regime will be taxed as and when the gains arise after 06 April 2025.
Opportunities for asset rebasing to April 6, 2019, will be available for disposals after 06 April 2025.
Where an individual was previously taxed on the remittance basis, they have the option of paying tax at a reduced rate of 12% on remittances of pre-April 2025 FIGs. This will apply for a period of two years from 06 April 2025, encouraging repatriation of funds and investment in the UK.
The benefit will not be available for FIG within trusts and trust structures.
Major impacts
Non-domiciled individuals will likely face increased tax liabilities, as foreign income and gains will be taxable in the UK regardless of remittance.
With the termination of the remittance basis, non-domiciled individuals will need to reassess their tax planning strategies and consider alternative approaches for managing their international income and assets.
The changes may lead to some non-domiciled individuals reconsidering their residency status in the UK, potentially resulting in an exodus of wealthy individuals seeking more favorable tax jurisdictions.
Conclusion
Overall, the shift from the remittance basis to the new FIG regime marks a significant change in the taxation of non-domiciled individuals in the UK, with potential implications for both tax revenue and the residency decisions of the individuals impacted.
It is important to note that legislation has yet to come into effect. The above is based on the proposed changes in the Spring Budget of 2024. The caveats could be changed depending on what actually comes out during the Autumn budget statement on 30 October 2024.
Lawrence Grant LLP, Chartered Accountants provides audit, accounting, tax, business advisory, and cross-border tax advice. They are focused on providing business solutions to clients to enable them to grow their businesses both in the UK and overseas. In an era of digital transformation, the firm offers a selection of cloud and digital software solutions using AI technology.
GGI member firmLawrence Grant LLP, Chartered AccountantsLondon, UKT: +44 20 8861 7575
Advisory, Auditing and Accounting, Fiduciary & Estate Planning, and Tax
Alan Rajah is the managing partner of Lawrence Grant LLP. He is involved in all areas of general practice, specialising in cross border tax planning, due diligence, mergers and acquisitions and inheritance tax planning. His client portfolio includes UK and overseas companies and individuals. Alan is the Global Vice Chair of the GGI International Tax Practice Group and a Trustee of British Foundation for International Reconstructive Surgery & Training (BFIRST).
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