After months of speculation the new Chancellor has delivered her first Budget on 30 October and we have provided a high-level review of the proposed changes to taxation of non-UK domiciled individuals below.
Taxation of non-UK domiciled individuals
The Government confirmed they will abolish the remittance basis of taxation for non-UK domiciled individuals (“non-doms”) from 6 April 2025, as the concept of domicile will no longer be relevant for tax purposes. It will be replaced with a simpler residence-based regime which will also be relevant for Inheritance Tax (“IHT”) purposes.
As previously noted, the Chancellor has confirmed that the following will be implemented:
- A four-year foreign income and gains (“FIG”) regime.
- Introduce a Temporary Repatriation Facility (“TRF”).
- Reform Overseas Workday Relief (“OWR”).
New Foreign Income and Gains regime
The new regime begins on 6 April 2025 and provides relief on foreign income and gains (“FIG”) for new arrivals to the UK, provided they have been non-UK tax resident in at least the previous ten tax years before their arrival. Those that qualify will receive 100% relief on any FIG claimed on their tax return for the first four tax years from when they become UK tax resident.
The remittance basis will no longer apply and those non-doms who do not meet the new conditions for the new regime will be taxed on the worldwide basis; all income and gains will be taxable in the year that they arise. This will include foreign income and gains of non-resident settlements that are settlor interested (i.e. the ‘trust protections’ will no longer apply).
Temporary Repatriation Facility (“TRF”)
A new TRF will be introduced from 6 April 2025 to encourage individuals who have previously claimed the remittance basis to remit funds to the UK. Currently, this is avoided as remitting the foreign income and gains sheltered by a claim for the remittance basis will cause it to be taxed at the relevant marginal rate (20%, 40% or 45% for income and up to 24% for capital gains).
The TRF will be available for three tax years, from 6 April 2025. The designated amounts will be liable to tax at a rate of 12% in the 2025/26 and 2026/27 tax years with the rate increasing to 15% in the 2027/28 tax year, this will be classed as the TRF charge.
The TRF charge will be paid on a designation amount and once this has been designated no further UK tax will be payable, regardless of the tax year it is remitted. Where a TRF charge is paid out of undesignated FIG this will be classed as a taxable remittance even if paid directly to HMRC.
There are complex rules to consider if you wish to utilise this facility and further advice should be taken before bringing any previously unremitted funds to the UK.
Overseas Workday Relief
OWR will still be available and based on income which relates to overseas duties determined on a just and reasonable basis. This has been extended to four years, so it is in line with the FIG regime.
From 6 April 2025, eligibility for OWR will be primarily based on whether employees are eligible for the four year FIG regime. It will provide income tax relief regardless of whether these earnings are brought to the UK or paid into an overseas account making it much simpler.
However, OWR will be subject to an annual financial limit for each qualifying year being the lower of:
- 30% of the qualifying employment income; or
- £300,000 per tax year.
Other taxes
From 6 April 2025, as noted above the residence-based system will apply for IHT. The test for whether non-UK assets are in scope for IHT purposes will be dependent on whether the individual has been resident in the UK for at least 10 out of the previous 20 tax years (a ‘long-term’ resident).
How long an individual will remain within the scope of IHT on their foreign assets after they have left the UK will depend on how long they have been resident in the UK. The IHT ‘tail’ will be on a sliding scale of between three to ten tax years.
There will be transitional rules for non-domiciled or deemed domiciled individuals who are non-resident in the 2025/26 tax year. Their scope to IHT will continue to be determined by the deemed domiciled rules, rather than the new rules, as long as they remain non-UK resident.
For Capital Gains Tax purposes, remittance basis users both current and past will be able to rebase personally held foreign assets to 5 April 2017 providing certain conditions are met on disposal.
What now?
The proposed changes to the legislation regarding the taxation of non-UK domiciled individuals are complex. Please get in touch if you think you may be impacted by these changes and would like to discuss them with a member of our team.
If you missed our latest Budget event, you can watch the recording of our seminar and view the latest report here.
If you would like to discuss how these changes might affect you, please get in touch with our team.
This article was correct at time of publication.
