Key changes in UK’s non-domicile regime overhaul

When Rachel Reeves got up to speak, she did not say much about the changes to the non-domicile regime.

However, the Government has now published a technical note Reforming the taxation of non-domiciled individuals. The note and draft legislation extend to 103 pages, leaving a great deal of detail to take in.

Until now individuals who do not have a domicile of origin in the UK have been able to live in the UK for up to 15 out of the last 20 tax years before they become subject to tax in the UK on their worldwide income and gains, and on their estate on death. By electing to be taxed on the remittance basis they have paid tax only on their UK assets and any foreign assets remitted to the UK. Changes to the non-domicile regime were outlined by the previous Government in the March Budget and now the Labour Government has clarified the new regime.

The FIG regime

The headlines are that the remittance basis of taxation will be abolished and replaced with a new residence-based regime. Individuals who have not been UK tax resident for the preceding 10 consecutive tax years can elect not to pay income tax and capital gains tax on foreign income and gains. This is going to be known as the FIG regime.

The FIG regime will be available to anyone coming to the UK after 10 tax years abroad, including those who are UK domiciled. This may be useful for British people who have lived abroad for a long period and want to remit income and gains. It will be necessary to make an application in your self-assessment tax return to be taxed under the FIG regime.

There will be a window of opportunity known as the Temporary Repatriation Facility whereby individuals will be able to remit to the UK FIG that arose in earlier periods that were not taxed in the UK. This will be available for three years from April 2025. The rate of tax will be 12% for the 25/26 tax year and 26/27 and will be 15% in 27/28.

Non-domiciled individuals who have claimed the remittance basis in the past and have not become deemed domiciled prior to the 25/26 tax year will have the option to rebase personally held assets for CGT at the value on 5 April 2017.

Inheritance tax

Assets situated in the UK have always been subject to UK inheritance tax. However, for individuals who are non-UK domiciled it has only been after they have been living in the UK for 15 out of the last 20 tax years that their worldwide estate will become subject to UK IHT.

However, from April 2025 it will be the case that UK IHT will apply to the worldwide estate of someone who has been in the UK for 10 out of the last 20 tax years. When leaving the UK, the "tail" will depend on how long the individual was resident in the UK. Previously it was suggested that exposure to UK IHT would only be lost after 10 years of non-residence, but it has been clarified that this will apply only to people who have been UK tax resident for 20 years.

So, if you live in the UK for 20 years and then leave it will take 10 years to lose your exposure to UK IHT. If you live in the UK for less time - between 10 and 19 years, then there will be a sliding scale - 13 years of residence will require 3 years of non-residence.

Off-shore trusts

Currently it is the case that non-UK assets comprised in a settlement are excluded property and outside the scope of IHT if the settlor was non-UK domiciled at the time the trust was established.

From 6 April 2025 the protection from tax of foreign income and gains arising within settlor-interested trust structures will no longer be available except where individuals are subject to the FIG regime.

There are some transitional provisions for assets held in trusts established before 30 October 2024. Foreign property held in such trusts will be exempt from IHT on the death of the settlor.

For advice on the upcoming changes to changes to tex implications for non-doms, please contact Angharad Lynn, in our Private Client team on 07500 042 044. Alternatively, you can fill out the form below.