Chancellor Rachel Reeves has confirmed last week that the new Labour Government does intend to go ahead with the abolition of the existing tax system for non-dom individuals from April 2025 and that it will be replaced with a new residence-based regime.
However, the Government has said that the approach announced in the Spring Budget left several advantages for existing non-doms, which the Government is committed to ending and the changes will “address unfairness in the tax system and ensure that everyone who is long-term resident in the UK pays their taxes here”.
Frustratingly for non-doms and their advisors, the detailed rules won’t be confirmed until 30 October 2024 which is when Rachel Reeves’ will deliver the Autumn Budget, but here we take a look at what we have learned this week.
Here’s what we do we know about the new regime
The format will be largely the same as that announced by Jeremy Hunt in the Spring 2024 Budget whereby the current tax regime will be replaced with a new residence-based regime under which individuals coming to the UK can elect not to pay UK tax on foreign income and gains (FIGs) in their first four years of UK tax residence.
There will be no delay to its implementation date and the four-year FIG regime will apply from 6 April 2025.
Individuals who have been UK tax resident in any of the 10 consecutive years prior to their latest arrival will not be eligible for relief.
Transitional arrangements to be less generous
A one-year 50% reduction in the amount of foreign income that will be subject to tax, for individuals who move from the remittance basis to the arising basis from 6 April 2025 and who are not eligible for the new four-year FIG regime which had been proposed by the previous Government will not be introduced.
The previous Government had an intention to allow rebasing of foreign assets to 5 April 2019 for previous remittance basis users. This rebasing will be retained but the date of rebasing will be reconsidered and confirmed at the Budget.
The previously proposed Temporary Repatriation Facility (TRF) will remain, so that individuals that have previously claimed the remittance basis will be able to remit FIG that arose prior to 6 April 2025 and pay a reduced tax rate. The rate and duration of these will be reviewed and confirmed at the Budget, to make such a facility “as attractive as possible”.
Trust Protections to be removed
It was confirmed that Trust Protections will be removed from 6 April 2025 with all foreign income and gains arising in a non-UK resident trust being taxable on UK resident settlors who do not qualify for the FIG regime.
There was also a new announcement of a review of offshore anti-avoidance provisions, including Transfer of Assets Abroad and Settlements Legislation, to remove “ambiguity and uncertainty in the legislation” with any amendments to be applied from 2026/27 at the earliest.
Overseas Workday Relief (OWR) to be retained
OWR will be retained and “officials will engage with stakeholders on the design principles for this tax relief and further details will be confirmed at the Budget”.
New residence-based regime for inheritance tax
The Government have also confirmed that, from 6 April 2025, a new test for Inheritance Tax in relation to non-UK assets will be introduced. This will be based on 10 years of tax residency and will keep someone within the scope of Inheritance Tax for 10 years after leaving the UK – but the Government will engage further on the operation of the new rules.
Non-Dom individuals coming up to their tenth year of UK residency will need to consider their options carefully.
So, where does this leave non-dom individuals and their advisors?
Some clarity has been provided terms of the date when changes will be effective from, what other points of policy are still outstanding and which of these gaps will be filled in at the Autumn Budget.
A Budget date of 30 October should, subject to the publication of draft legislation, allow some time to consider any suitable actions to take prior to 6 April 2025 but really, non-doms should be reviewing their affairs and structures now to plan ahead as best as possible with any restructuring actions.
Get in touch
If you have any queries about any of the above, please don’t hesitate to get in touch with our expert tax team right here.
