Backdrop

One of Labour’s key pledges in the run up to the election has been to abolish the ‘non-dom regime’, not least because it has given them an opportunity to remind the electorate that until recently, Rishi Sunak’s wife was benefitting from these rules!

Non-UK Domiciled Individuals (Non-doms) are individuals who are resident in the UK for tax purposes, but who are not domiciled in the UK (meaning the UK is not deemed to be their permanent home) – usually because they were not born in the UK, and they do not intend to stay in the UK forever. 

As things stand, non-doms can choose to restrict their UK tax exposure on foreign income and gains (FIG) to the extent that they bring or ‘remit’ FIG to the UK.  This is known as the remittance basis of taxation, and it allows very wealthy individuals who live in the UK to significantly reduce their exposure to UK tax.  These individuals sometimes have to pay a charge to take advantage of this, but the charge will in many cases be significantly less than they would be paying HMRC if their worldwide income and gains were subject to tax in the UK.

Changes Announced

Arguably stealing Labour’s thunder, the Chancellor announced that the Government would be reforming or ‘modernising’ the regime for taxing non-doms with effect from April 2025.  In simple terms, they will bring into the scope of UK tax all FIG which arise from April 2025.

There will however be some protection available to new arrivals to the UK.  Those who have a period of 10 years consecutive non-residence will enjoy full relief on FIG for their first 4 years of UK tax residence, and during this time they will be able to bring the money back to the UK without a tax charge.  

Existing tax residents who have been in the UK for fewer than 4 tax years will benefit on the same terms until the end of their 4th year of UK residency.

Although the detail that has been announced is significant for Income Tax and Capital Gains Tax purposes, the Government also plan to reform the way in which an individual’s domicile status determines their Inheritance Tax position, with a move towards a residence-based system.  Further detail is expected on this later in the year, although the Government have confirmed that the treatment of excluded property trusts created prior to April 2025 will not be changed.

Existing Non-Doms

There will of course be a number of UK tax residents currently using the remittance basis who will be affected.  The Government have announced the following transitional measures to soften the impact on them:

  • A temporary 50% reduction in the foreign income that will be subject to tax in 2025/2026 for those non-doms who will not be eligible for the new 4 year FIG exemption;
  • For disposals after 6 April 2025 by current non-doms who have claimed the remittance basis, a re-basing of capital assets to the value at April 2019 (meaning only growth in value from that date will be taxed);
  • A 12% tax rate on remittances of pre-April 2025 FIG which take place in 2025/2026 or 2026/2027.

Please click here to go back to our full Spring Budget 2024 analysis.