The Spring Budget 2024 announced significant changes to the UK’s tax regime for non-UK domiciled individuals (non-doms), effective from 6 April 2025.
Further details and draft legislation are pending. However, it is clear that these changes will significantly affect the UK tax affairs of many non-doms and trusts settled by non-doms. Therefore, it is essential to consider planning opportunities before 6 April 2025.
Here, we provide an overview of what we know so far from a personal tax perspective and suggest actions individuals should consider ahead of the scheduled introduction date.
Current Status of the Proposed Legislation
- There are several factors that could alter the proposed changes, including the legislative process, government consultation outcomes, and the next general election. Notably, the government does not plan to include these changes in this year’s Finance Bill, so the final position remains uncertain.
- Despite this uncertainty, it is important to incorporate the expected changes into any residency and domicile planning. The Labour Party has expressed intentions to abolish the current non-dom regime, indicating likely changes regardless of the election outcome (which must occur no later than 28 January 2025).
What We Know So Far - Individuals
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Remittance Basis Abolished:
From 6 April 2025, the remittance basis of taxation for income tax and capital gains tax is expected to be abolished for UK resident non-doms. The last year to claim the remittance basis will be 2024/25.
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New Arrivals:
New arrivals can claim exemption from UK tax on foreign income and gains for the first four years of UK tax residence, provided they were non-resident for 10 consecutive years before arrival.
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Transition Provisions:
Non-doms transitioning from the remittance basis to the arising basis in 2025/26 are eligible for a 50% reduction in taxable foreign income for that year.
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Rebasing of Foreign Assets:
Taxpayers can rebase the cost of foreign assets to their 5 April 2019 value, applicable to those who claimed the remittance basis and are neither UK domiciled nor deemed UK domiciled by 5 April 2025.
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Tax Rate for Remitted Income:
UK resident non-doms can remit previously protected foreign income and gains at a 12% tax rate for 2025/26 and 2026/27, except for income and gains within trusts.
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Worldwide Income and Gains:
After the four-year rule, taxpayers with more than four years of UK tax residence will be taxed on worldwide income and gains, making domicile irrelevant.
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Inheritance Tax (IHT):
The government is considering a residence-based regime for IHT, potentially bringing worldwide assets within UK IHT scope after 10 years of UK residence, with a 10-year ‘tail’ post-departure.
What We Know So Far - Trusts
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Settlor-Interested Trusts:
From 6 April 2025, these trusts will lose their 'protected' status for income tax and capital gains tax purposes.
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Tax-Free Foreign Income:
Foreign income and gains within formerly protected trusts will be tax-free if they arise in the settlor’s first four years of UK tax residence.
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Post-2025 Income:
Foreign income and gains arising after 6 April 2025 will be matched to benefits and distributions to UK residents.
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IHT:
UK assets within offshore trusts remain subject to UK IHT. The regime for non-UK property settled by non-UK domiciled settlors before 6 April 2025 is expected to continue, while the IHT position for post-2025 settlements is under consultation.
Actions to Consider Before 6 April 2025
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Utilize transitional provisions to remit protected foreign income and gains at a 12% tax rate.
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Plan return or departure timings to maximize protection of foreign income and gains.
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Settle new excluded property trusts before 6 April 2025.
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Exclude oneself as a beneficiary of a protected trust before 6 April 2025.
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Time receipt of foreign income and gains to minimize tax rates.
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Review foreign asset sales to benefit from 5 April 2019 rebasing or existing remittance basis claims.
We Are Here to Help
- If you have questions about the anticipated changes, their impact on your situation, and planning for them, please contact your VPC advisor or a member of our specialist team.
