Non-UK Domiciled Changes

In the 2024 Spring Budget important changes have been made to the generous tax treatment afforded to non-domiciled individuals, like Rishi Sunak’s wife.

A ‘non-dom’ individual is one whose place of origin is not the UK, often because they or their parents were born overseas. It is not linked to residence and may change if you choose to sever all ties with your home/stay somewhere else indefinitely. It can be a complex area.

Background

A quick Google search outlines fascinatingly that the non-dom status started in 1799…

“The UK’s non-dom regime dates back to 1799, when it was introduced to protect an individual’s colonial investments.”

One of the purposes of the favourable tax treatment was politically motivated by encouraging wealthy individuals to come to the UK and not suffer punitive tax on income earnt elsewhere in the world.

225 years later the treatment, as you would expect, has significantly changed but still with similar motivations.

Before the Spring budget – how did it work?

Prior to the budget a qualifying non-dom individual could claim to be taxed on the remittance basis of UK taxation, whereby they would not pay UK tax on their overseas income or gains when they arose, but instead only when they were brought to the UK.

If a non-dom claimed the remittance basis of taxation, then after seven years of residence in the UK they would pay an annual of £30,000, increasing to £60,000 after 12 years. Following 15 years of UK residence, the non-dom could no longer use the remittance basis and would have to pay tax on their worldwide income and gains if they remained resident in the UK.

Following the Spring Budget

The statement from the treasury read:

“Individuals will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last 10 years.”

From 6 April 2025, the current remittance basis of taxation will be abolished for UK resident non-domiciled individuals. This will be replaced from 6 April 2025 with a new 4-year foreign income and gains (FIG) regime for individuals who become UK tax resident after a period of 10 tax years of non-UK residence.

Qualifying individuals will not pay tax on FIG arising in the first four tax years after becoming UK tax resident and will be able to bring these funds to the UK free from any additional charges. They will not pay tax on non-resident trust distributions either. They will pay tax on UK income and gains, as is the case for non-domiciled individuals now.

From 6 April 2025, individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility (TRF) that will be available for tax years 2025-26 and 2026-27.

Under the new regime individuals will not be required to track the movement of their FIG through investments in the way they are required to do now under the current regime. This will make the new 4-year FIG regime much simpler than the remittance basis regime.

If an individual chooses to be taxed under the new 4-year FIG regime, they will lose entitlement to personal allowances and the capital gains tax annual exempt amount.

Claims to use the new 4-year FIG regime are to be made for each year to which it is to apply. Individuals need not make a claim for every year of the 4-year period. For example, an individual who makes a claim for the new 4-year FIG regime in year 1 but chooses not to make a claim for year 2 will still be able to claim for years 3 and 4.

Game-changing news for the Globally Mobile

As more workers are globally mobile the UK government have put in place an attractive and straightforward set of reforms to replace the complex remittance basis regime. This will encourage workers to come to the UK temporarily without suffering punitive tax charges on their worldwide income within the first four years.

Quick Takeaways

• A new 4-year foreign income and gains (‘FIG’) regime replaces the remittance basis.
• Individuals who become UK tax resident after a period of 10 tax years of non-UK residence can claim.
• The new arrangements are not limited to non-domiciled individuals.
• No tax due on FIG within first 4 years of being UK resident.
• 12% charge on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility (TRF) if remittance basis claimed before.
• Existing non-doms will have the option to rebase capital assets to 5 April 2019.
• Likely to bring a high level of investment to the UK.

Summary

Although there are many details yet to be finalised, we advise all current non-domiciled individuals, regardless of their duration of residence in the UK, to promptly evaluate their circumstances. We encourage you to get in touch with one of our tax team who specialises in this area to explore your available options.

As always, our team are here to answer any questions you may have. Please do contact us if you have any questions or call us on 01276 61203

Andrew McIntyre – Assistant Tax Manager