Residence & Domicile

Understanding the budget: What It Means for Non-Domiciles

At present, a person's taxable income and capital gains depends on their domicile status. However, with the suggested amendments, the idea of domicile will no longer affect a person's income and capital gains tax liabilities. Instead, these will be determined by a residency-based test.

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Current non-domicile rules

Traditionally, the UK tax system allows non-domiciled residents to opt for the remittance basis, taxing them only on foreign income and gains that are brought into the UK. This setup also means most non-UK assets of non-doms escape UK Inheritance Tax (IHT), while UK-based income and assets are taxed as usual.

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New rules from 6 April 2025

The landscape shifts significantly in 2025, marking a departure from domicile status to a more stringent residency-based taxation system. Individuals residing in the UK for over four years will be taxed on worldwide income and gains. Those that has been a resident for 10 years will face worldwide assets being assessed for UK IHT, the government are to consult on this futher.

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What impact will this have on current non-dom residents?

This overhaul eliminates the remittance basis, bringing worldwide income and gains into the UK tax realm. It also implies potential taxation on foreign incomes and gains from offshore trusts established by non-doms, a departure from the previous norms.

The transition year of 2025/26 introduces a temporary measure where only 50% of foreign income falls under UK tax, excluding foreign gains. Additionally, a Capital Gains Tax rebasing option for non-domiciled individuals allows for asset value adjustments, potentially reducing taxable gains, given they meet certain yet-to-be-clarified criteria.

A temporary reduction in tax rates for repatriated foreign income and gains to 12% for the years 2025/26 and 2026/27 under the Temporary Repatriation Facility signals a notable incentive for non-doms.

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All doom & gloom? Not for the first 4 years

The introduction of the Foreign Income and Gains Regime (“ the FIG Regime”) promises tax exemptions on foreign income and gains for qualifying new UK residents, this will be at the cost of losing the personal allowances and capital gains tax exemptions typical to remittance basis users.

This benefit is valid for the initial four years of UK residency, provided the individual was a non-UK resident for the preceding ten years.

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Preparing for the Transition

There is no requirement under the FIG regime for foreign income and gains to remain outside of the UK, which differs from the current remittance basis regime.

Individuals may need to consider how they structure their post-6 April 2025 income and gains so that they do not become mixed with income and gains on which the remittance basis has previously been claimed, although the mixed fund ordering rules are expected to be relaxed somewhat.

Non-UK assets settled into trust by a non-UK domiciled individual before 6 April 2025 will remain excluded property and therefore outside the scope of UK IHT. This continued IHT benefit means that individuals with existing excluded property trusts may still find it more attractive to retain these structures, despite the income and gains potentially becoming taxable on them.

Accordingly, those who are currently non-domiciled may want to consider settling non-UK assets into a Trust before 6 April 2025 to take advantage of this continued protection.

The reduced rate of tax for remitted foreign income and gains in 2025/26 and 2026/27 is extremely favourable compared to normal tax rates of up to 45% and presents an incentive to bring these funds to the UK in the transitional period. Individuals may also now consider delaying any remittances until after 6 April 2025 to take advantage of this temporary reduced tax rate.

For non-doms have not previously claimed the remittance basis, they should weigh up the benefits of doing so with the potential cost, given that some of the transitional provisions noted above are only available to those who have previously made a remittance basis claim.

Individuals who originally planned to come to the UK before 6 April 2025 might consider delaying their arrival to take full advantage of the new four-year FIG regime.

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Navigating the New Tax Terrain with Professional Guidance

As the UK tax system evolves, so does the need for comprehensive planning and advice. Our firm stands ready to assist non-doms in navigating these changes, ensuring tax efficiency and compliance across jurisdictions.

For personalised guidance or to understand more about how these changes might affect you, reach out to us. Together, we can ensure that your financial planning is both strategic and aligned with the new tax regulations.