Changes to the taxation of non-UK domiciled individuals Updated 31 July 2024.
Background
Following the election of the new Labour Government on July 5, 2024, HM Treasury published a Policy Paper on July 29, 2024 (updated on 31.07.2024), addressing changes to the taxation of Non-UK Domiciled (“Non-Doms”) individuals. This document outlines further modifications to the proposals introduced by the previous Government during the 2024 Spring Budget (the “July 2024 Policy Paper”).
According to the July 2024 Policy Paper, the government plans to eliminate the historical concept of domicile status from the tax system and implement a new residence-based regime. This new system aims to be internationally competitive and attract top talent and investment to the UK. The government will proceed with the 4-year Foreign Income and Gains (“FIG”) regime announced in the 2024 Spring Budget. However, they believe this approach still offers advantages to existing non-doms, which they are committed to eliminating. Consequently, the government will review key areas of the reforms to ensure the new regime is both fair and competitive.
New Residence-Based Regime for Foreign Income and Gains
From April 6, 2025, preferential tax treatment based on domicile status for all new Foreign Income and Gains (“FIG”) will be removed. The remittance basis of tax will be replaced by a residence-based regime, offering 100% relief on FIG for new UK arrivals during their first four years of tax residence, provided they have not been UK tax residents in any of the 10 consecutive years prior to arrival.
From April 6, 2025, non-domiciled and deemed domiciled individuals will no longer receive tax protection for income and gains within settlor-interested trust structures unless they qualify for the 4- year FIG regime
The government plans to review offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation, to modernize the rules, remove ambiguity, simplify application, and ensure effectiveness. Further details on this review will be provided in due course, with no expected changes before the 2026/27 tax year
A form of Overseas Workday Relief (“OWR”) will be retained, with further details and design principles to be confirmed at the Budget following stakeholder engagement.
Transitional Arrangements for Affected Non-UK Domiciled Individuals
The previous government’s policy of providing a 50% reduction in foreign income tax for individuals losing access to the remittance basis in the first year of the new regime will not be implemented.
UK residents ineligible for the 4-year FIG regime (or those who opt not to claim it) will be subject to Capital Gains Tax (CGT) on foreign gains as usual. Transitional arrangements will allow current and past remittance basis users to rebase foreign capital assets to their value at the rebasing date for CGT purposes upon disposal. The government will determine and announce the appropriate rebasing date at the Budget.
FIG arising before April 6, 2025, while an individual was taxed under the remittance basis, will continue to be taxed upon remittance to the UK, as per current rules. This includes pre-April 6, 2025, FIG for those eligible for the new 4-year FIG regime
A new Temporary Repatriation Facility (“TRF”) will be introduced for individuals previously taxed on the remittance basis. They will be able to remit FIG that arose before April 6, 2025, at a reduced tax rate for a limited period. Details on the rate and duration of the TRF will be set to encourage its use. The government is exploring ways to expand the TRF to include stockpiled income and gains within overseas structures, with further details to be confirmed at the Budget
New Residence-Based Regime for Inheritance Tax
Currently, Inheritance Tax (IHT) is based on domicile status. From April 6, 2025, the government intends to switch to a residence-based system, affecting the scope of property subject to UK IHT for individuals and trusts.
Under the new regime, the basic test for whether non-UK assets are subject to IHT will be whether an individual has been UK resident for 10 years prior to the tax year of the chargeable event (including death), with provision to keep a person in scope for 10 years after leaving the UK. The government will engage with stakeholders to refine this test. IHT charges on deaths occurring before April 6, 2025, will remain under existing rules
The use of Excluded Property Trusts to keep assets out of the scope of IHT will end. The government plans to change how IHT is charged on non-UK assets held in such trusts, ensuring all long-term UK residents are treated equally for IHT purposes. Transitional arrangements for existing trust structures will be considered, with detailed rules and application to be confirmed at the Budget following external engagement.
The government will not conduct a formal consultation on moving to a residence-based IHT system but will review stakeholder feedback from the Spring Budget and carry out further engagement over the summer on IHT policy design.
Next Steps
These changes, outlined in the Policy Paper, are preliminary and have not yet been implemented into legislation. Therefore, they are not currently in force and may be subject to further changes until formally enacted.
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