This year’s Spring’s Budget included significant changes concerning the way tax will be calculated for non-UK domiciled individuals (non-doms). Claire Spinks, our Head of Tax Technical and Development, takes a look at what’s been proposed and the effects for non-doms and those planning to reside in the UK.
Non-doms have been on the political agenda for some time, so it wasn’t a great surprise to see new proposals concerning how this group will be taxed. If you’re a non-dom you’re generally living in a different country to the one you’re domiciled in, which can allow you to access certain advantageous tax regimes. In the UK, non-doms can opt to pay tax under the ‘remittance basis’, leaving overseas interests outside of the UK tax net as long as they’re not remitted or enjoyed in the UK. The new proposals suggest that this current regime will be replaced with a residence-based test which will apply if you’ve not been UK tax resident in the last ten years. As a result, it could have a positive impact for long-term expats on their return, as well as those who choose to move to the UK from other countries.
The new rules are set to apply from 6 April 2025, although draft legislation is yet to be published, and a general election could affect the shape and form of what’s actually introduced. However, it’s certainly sensible to understand what’s being proposed. Here are some of the key considerations:
I’m planning a move to the UK – how will the new rules affect me?
If you arrive in the UK on or after 6 April 2025, and were non-UK resident for the previous 10 tax years, it’s only the new rules you need to consider. For the first four tax years in which you’re UK resident you can elect to pay UK tax only on your UK income and gains. Any foreign income and gains won’t be taxed in the UK even if you bring them in. This will be known as the ‘FIG’ (Foreign Income and Gains) regime. If you’ve moved or are moving this year (2023/24) or in the next tax year (2024/25) you’ll experience a limited period under the current rules and your ability to use the FIG regime will cease as you move into your fifth tax year of residence. After that you’ll be taxed in the UK on all of your worldwide income and gains. The phased approach should give more time to plan what to do with your non-UK assets and move these to the UK, with no UK tax consequences.
I’m a non-dom already living in the UK – what should I be aware of?
If you’ve only been in the UK a short time, you should consider whether the new FIG regime will apply to you; it’ll be based on the date you became UK resident and the previous number of years you were non-resident. If the FIG regime won’t apply, you’ll face tax on your worldwide position when the new rules kick in – although the proposals suggest you may be able to access a transitional year, where UK tax is only charged on 50% of your foreign income. After that, the new rules apply, and you’ll need to ensure your non-UK income and gains are being correctly reported. Treaty claims and the review of tax-efficient investments may be able to help shelter some of the UK tax burden.
I’m leaving the UK in the next year – do I need to do anything?
If you’re no longer tax resident in the UK, the changes shouldn’t affect you as these proposals don’t impact the way non-UK residents are taxed. You should check on which date you’ll stop being UK resident. This will be relevant for the tax year in which you leave and could be relevant later on if you try to access the FIG regime. However, you’ll need to bear in mind Inheritance Tax. The potential move to a residence-based system means that if you’ve been UK tax resident for ten years, you’ll possibly face UK Inheritance Tax (IHT) on your worldwide assets for a further ten years after leaving. This is a significant shift for departing non-doms, and although the details haven’t yet been released, careful planning may be needed, especially given there is at last a clear timeline over how to restrict the UK IHT net.
What will happen to non-UK trusts?
The government made it clear that they wish to tackle the benefits which non-UK trust structures offer. There’s been confirmation that Trust Protections (introduced in April 2017) will be removed for all non-UK income and gains which use these structures after April 2025. Whilst we had understood that Trusts established by non-doms before April 2025 should still continue to benefit from ‘excluded property’ trust status, Labour have made their view clear; if they were to be elected, their position would reverse this statement.
How will historic overseas income and gains be dealt with?
Any historic non-UK income and gains won’t be taxed in the UK if you don’t ‘remit’ it to the UK. From 6 April 2025, for a two-year period, another option will be to remit funds into the UK and pay a flat 12% rate of tax. If you plan to bring funds into the UK but don’t want to face the full tax rates this might be a useful option to consider. However, it’s very likely that evidence will be needed about the value you’re remitting, especially if you’re claiming that entire amount shouldn’t be taxed.
Taking action
For the time being it’s useful to be aware of the proposals whilst remembering that they are only suggestions. The 2015 Budget also featured proposed changes for non-doms (although not to the scale announced this month) but the changes took until June 2017 to be legislated – three months after the start of the tax year in which they came into effect. There were also significant amendments in the journey from the announcement to actual legislation! The time to act, if needed, will be when more detail is revealed later in the year.
The same is true of the IHT discussions – at this stage they are simply questions in a consultation. Whilst it certainly gives an indication of the government’s direction of travel, nothing has yet made its way into a formal proposal. There’s no doubt that the next steps will be steered by the consultation so it’s very much a situation where we need to just watch this space.
If you need to discuss any aspect of your UK tax planning, please get in touch with your nearest office.
