In yesterday’s 2024 Spring Budget, the Chancellor announced that the regime for taxing individuals who are not domiciled or deemed domiciled in the UK will be reformed from 6 April 2025, with transitional reliefs during 2025/6 and 2026/7.
Currently, individuals who are not UK domiciled and who have been UK tax resident for less than 15 of the last 20 tax years are eligible to claim the Remittance Basis of taxation, which exempts their foreign income and gains from UK income tax and CGT, as long as it is not remitted to the UK. This regime is not compulsory and can be opted in or out of on an annual basis. Those claiming it lose their tax-free personal allowance and once they have been tax resident in the UK for more than seven of the last nine tax years, they have to pay for the privilege of benefiting from the remittance basis.
From 6 April 2025, the system will be replaced with a simpler residence-based regime where individuals will not pay UK tax on any Foreign Income and Gains (FIG) arising in their first four years of tax residence. This will apply to Arrivers, to be defined as those who have been non-UK tax resident for at least the last ten tax years. Individuals can choose to opt in and out of the new system on an annual basis during the four years, and those who opt in will lose their entitlement to a tax-free personal allowance in that year.
This could be a fantastic opportunity for short term visitors who find themselves temporarily in the UK. The freedom to remit as much or as little as they wish, tax free, during that time may provide a welcome boost to the economy. The loss of the tax-free personal allowance for those who opt in could cost up to £5,000 in additional tax for those earning less than £100,000, but for anyone earning more than that, this regime carries no downside that we can see.
After four years of residency, which will be calculated by reference to the Statutory Residency Test without making allowances for Split Year or Treaty Non-Residence, if the individual remains UK tax resident, they will be subject to UK taxes on their worldwide income and gains.
Less fantastic and could potentially put wealthy non-UK individuals from staying here long term as 45% is still viewed as a punitively high tax rate by many.
Individuals who leave the UK temporarily during the four year period will still be able to make a claim under the regime for any qualifying tax years remaining upon their return to the UK.
It is not yet clear whether if you leave during your first four years the clock keeps running, or if it stops and gets restarted when you return – however, we suspect or rather hope for the latter, is just that … hope.
Those who have currently been in the UK for less than four years will be able to take advantage of the rules until the end of their fourth year of UK tax residence.
Unlike the current system, there will be no need to track the movement of FIG within accounts and investments, significantly reducing the admin burden currently placed on those using the Remittance Basis.
Reducing the amount of admin required is always welcome!
Transitional arrangements will apply to those individuals currently using the Non-Dom regime and claiming the remittance basis who will be affected from 6 April 2025. These will include:
- The option to rebase the value of overseas capital assets at their 5 April 2019 value for CGT purposes. There will be conditions attached to this, but these have yet to be published.
Rebasing at 2019 aligns this with the date of rebasing for Commercial Properties, the most recent of the other rebasing dates. It is also ensuring that, where assets values are still suffering the impact of depressed valuations as a result of Covid, they benefit from Pre-Pandemic values rather than a potentially lower value now.
- For the tax year 2025/26, there will be a one-off 50% reduction in the amount of foreign income (not gains) chargeable to tax.
This will soften the blow slightly and might prevent a mass exodus on 5 April 2025 (?).
- A two-year Temporary Repatriation Facility enabling them to remit previously untaxed FIG at a reduced rate of 12%. In order to enable a smooth transition to the new regime, there will be some relaxation of the current mixed fund ordering rules to ensure that it is simple for existing Non-Doms to take advantage of the Temporary Repatriation Facility and to bring money into the UK during the transitional period. From 2027/28 the remitting of pre–April 2025 FIG will be taxed at normal rates.
This is a great opportunity to bring money onshore at a very low rate of tax and is designed to encourage people to do this sooner rather than later – leaving the money overseas to remit later will mean that is still suffers tax at 45% if done after 5 April 2027. Ordinarily, leaving money overseas may have been part of a sensible IHT strategy to keep assets outside of the UK net, but on the basis that those rules are set to change too, there may be less incentive to do this. Even so, it will be important to understand, when we see the legislation, how this might work with other reliefs, such as Business Investment Relief, to ensure that this is really as good a deal as it seems.
What next?
To read more about how non doms have been affected in the Spring Budget 2024 please read our full report here.
For further information about the new system for Non-Doms, click here.
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