A new policy paper was recently published by HMRC with more details around the new non-dom tax rules effective from 6 April 2025.
Below is an overview of the key points:
End of Remittance Basis
The government confirmed that the 2024/25 tax year will be the last year for which the remittance basis can be claimed.
A new four-year Foreign Income and Gains (FIG) regime will be introduced for UK arrivals who were non-UK tax residents in any of the 10 consecutive years prior to their arrival.
Under this regime FIG will not be taxed for the first four years of UK residence even if remitted to the UK, provided that a claim is made. A claim will result in the loss of entitlement to the personal allowance and the CGT annual exemption.
In addition, individuals who can benefit from this regime and make a claim will not pay tax on income distributions from offshore trusts in this period as the anti-avoidance provisions attributing FIG to such individuals will be switched off.
Any FIG that arose before 6 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK as is the case under the current rules. This includes remittances of pre-6 April 2025 FIG for those who are eligible for the new 4-year FIG regime.
Changes to Trust Protections
Trust protections will cease to apply to income arising or gains accruing within settlor-interested trust structures. FIG arising within protected offshore trusts before 6 April 2025 will not be taxed unless matched to distributions or benefits paid to UK residents. However, anti-avoidance provisions will apply after the four-year period or for those not eligible for the new FIG regime.
Transitional provisions
Contrary to what was announced by the previous government the policy providing a 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime, will not be introduced.
The government is still committed to two transitional provisions for individuals:
- CGT rebasing: individuals who are ineligible for the 4-year FIG regime or who choose not to make a claim for a tax year will be able to rebase foreign capital assets they hold to their value at the rebasing date when they dispose of them after 6 April 2025. The government is considering the appropriate rebasing date and will set this out at the Budget on 30 October.
- Temporary Repatriation Facility (TFR): individuals that have previously claimed the remittance basis will be able to remit FIG that arose prior to 6 April 2025 and pay a reduced tax rate on the remittance for a limited time period after the remittance basis has ended. At Spring Budget 2024, the reduced fixed rate was announced as 12% and the facility was to exist for two tax financial years (2025/26 and 2026/27). The new document states that the rate and the length of time that the TRF will be available will be set to make use as attractive as possible.
The government is also exploring ways to expand the scope of the TRF, including to stockpiled income and gains within overseas structures, and will confirm further details at the Budget.
Overseas Workday Relief (OWR)
Eligibility for OWR is expected to be reformed in line with the new regime. This relief will be available for the first three tax years, providing income tax relief for earnings related to overseas duties. Further details will be published at the Budget.
Inheritance Tax (IHT) Reforms
IHT will move to a residence-based regime.
UK IHT will apply also to foreign situs assets after ten years of UK residence. The basic test for whether non-UK assets will be in scope for IHT from 6 April 2025 will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event, including death, arises.
Additionally, the government intend to introduce provisions to keep a person in scope for 10 years after leaving the UK but there will be further engagement with stakeholders on the operation of the new test so that any change can be considered fully.
Excluded Property Trusts
The government will end the use of Excluded Property Trusts to keep assets out of the scope of IHT. It is being considered how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements. Confirmation of these new rules and their detailed application, including transitional arrangements for affected settlors, will be published at the Budget.
These changes mark a significant shift in the UK’s tax landscape for non-domiciled individuals, and we recommend reviewing your tax planning strategies in light of these developments.
If you have any questions or need assistance in understanding how these changes may affect you, please do not hesitate to contact us.