Under the current rules, UK tax resident non-domiciles who haven’t become deemed-domiciled can choose to be taxed on the remittance basis. Currently Individuals suffer tax on their UK income and gains in the same way as other UK residents, they only pay tax on their foreign income and gains (FIG) when these are remitted to the UK.
From 6 April 2025 there will be huge change in how non-domiciled individuals will be taxed. It will be replaced by a residence based regime, providing 100% relief on eligible FIG for new arrivals to the UK in their first four years of tax residence, provided they have not been a UK tax resident in the 10 tax years immediately prior to their arrival – the four-year FIG regime.
From 6 April 2025, individuals who are not eligible for the four-year FIG regime will pay tax at the same rate as other UK resident individuals on any newly arising FIG like any other taxpayer.
Taxpayers currently benefitting from that remittance basis will continue to pay tax on FIG that arose before 6 April 2025 that they remit to the UK, in addition to any current year FIG. A Temporary Repatriation facility will be introduced to allow individuals to elect to tax pre-April 2025 FIG over a three-year period (2026/2027/2028) and incur a one off tax charge of 12% for the first two years, increasing to 15% in 2028 . They will suffer no further tax when they then remit this income.
Settlor-interested Trust Structures
This change to non-dom rules will also apply to settlor interested trust structures. The protection from tax on FIG arising within settlor-interested trust structures will also no longer be available for non-domiciled and deemed domiciled settlors who do not qualify for the 4-year FIG regime from 6 April 2025. There will also be implications for distributions made to UK individuals who do not qualify for the four-year regime.
For Capital Gains Tax (CGT) purposes, current and past remittance basis users can rebase their personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met.
Inheritance Tax
Inheritance Tax (IHT) is currently a domicile-based system. A new residence-based system for IHT will be introduced from 6 April 2025. This will affect the scope of property brought into UK IHT for individuals and settlements.
The test for whether non-UK assets are in scope for IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises. The time the individual remains in scope after leaving the UK will be shortened where they have only been resident in the UK for between 10 and 19 years.
Overseas Workday Relief
Overseas Workday Relief (OWR) will be retained and will still be based on income which relates to overseas duties determined on a just and reasonable basis. From 6 April 2025, eligibility for OWR will be primarily based on whether employees are eligible for the four-year FIG regime. This will provide relief from income tax for a four-year period, regardless of whether these earnings are brought to the UK or whether they are paid into an overseas account.
These rules are extremely complex, and individuals affected by these changes should seek advice about how their foreign income and gains will be taxed in the coming years.
Budget analysis webinar
On October 31st, we hosted a Budget Analysis webinar, analysing the Chancellor's announcements and the potential consequences for both businesses and individuals.
