Where are the rules heading for non-domiciled individuals?

In a recent online article, we looked at what the new Labour Government might mean for 'non-doms'. Now, the Exchequer has set out a timeline for the implementation of the new rules and has offered an initial policy overview, with further details to be provided in the Autumn Budget on 30 October. In a recent article, we looked at what the new Labour Government might mean for 'non-doms'. Now, the Exchequer has set out a timeline for the implementation of the new rules and has offered an initial policy overview, with further details to be provided in the Autumn Budget on 30 October.

The previous regime 

Under the previous regime, non-doms could elect to be subject to the remittance basis of taxation. This regime meant that non-doms would be subject to UK tax on UK income and gains as they arise but only pay UK tax on foreign income and gains if and when they were remitted to the UK. After seven years of residency, a remittance basis charge applied, and when non-doms had been resident for 15 years out of the previous 20 tax years, they became deemed domiciled, and their worldwide assets became subject to UK tax on an arising basis.

The Foreign Income and Gains (FIG) regime

The Government has confirmed that the remittance basis of taxation will be scrapped and replaced by the four-year FIG regime proposed by the previous Government in the Spring Budget. Under this regime, individuals who have not been tax resident in the UK for any of the previous ten tax years prior to their arrival will be able to bring their foreign income and gains into the UK free of tax for the first four tax years of their residency. Those who do not qualify for the new FIG regime will pay UK tax on their foreign income and gains from 6 April 2025 on an arising basis. 

The Government has indicated that it will offer concessions for resident non-doms, reaffirming parts of the previous Government’s transitional provisions. A Temporary Repatriation Facility (TRF) will be available to those who are ineligible for the FIG regime, allowing them to pay ‘a reduced rate of tax’ for ‘a limited time period’. Although the previous Government set a flat rate of 12% and envisaged the facility lasting for two years, the new Government has indicated that it will be committed to making the TRF ‘as attractive as possible’. Further details will be provided in the Autumn Budget where the Government will also clarify its position on the TRF’s application to overseas structures. The previous Government envisaged that the TRF would only apply to foreign income and gains that arose to an individual personally and not through a trust structure, so this point of clarification will be welcomed by resident non-doms. 

Despite some flex in the Government’s policies for resident non-doms, as expected, the Exchequer will scrap the 50% relief previously available to resident non-doms for remittances of foreign income in the 2025-26 tax year. 

UK Inheritance Tax (IHT)

The Government will also proceed with the previous Government’s plan to move IHT to a residence-based system. Under this system, the proposed test to determine whether non-UK assets will fall within the scope of IHT is whether an individual has been resident in the UK for ten years. IHT will cease to apply to these assets only when an individual has been non-resident for a period of ten consecutive years.

There is a sense of urgency to the Government’s legislative drive as it intends to take a light touch approach to consultation with all new rules set to be implemented for 6 April 2025. There will be no formal policy consultation, instead the stakeholder feedback following the Spring Budget will be reviewed and officials will collaborate with stakeholders in ‘a series of insight gathering sessions’ over the summer.  

Trusts

The Government has also softened its stance on excluded property trusts allowing for ‘appropriate adjustments’ to be made for IHT following 6 April 2025. Further transitional arrangements are expected to be announced in the Autumn Budget. 

While the current policies appear more conciliatory than previously indicated, the Government is intent on moving quickly and the final policy designs will be announced at the Autumn Budget with the legislative changes to follow.

If you would like to advice for non-domiciled individuals, please contact Angharad Lynn in our Private Client team on 07500 042 044. Alternatively, you can fill out the form below.