Starting from April next year, non-domiciled individuals (non-doms) in the UK will encounter a more stringent tax environment as the Labour government seeks to reform what they consider outdated tax benefits and overhaul Inheritance Tax (IHT) regulations.
Former Chancellor Jeremy Hunt announced in this year’s Spring Budget that the UK would eliminate non-dom status and gradually phase out the remittance basis.
The Labour Government aims to build on these plans with a scheme intended to support those who are “genuinely in the country for a short time.”
The Conservatives had planned to implement a transitional phase, which offered a 50 per cent reduction in tax on foreign income for individuals losing access to the remittance basis during the first year of the new regime.
The Labour Party, however, have no intention of having this transition.
What is the new regime?
The new resident-based regime for IHT is set to take effect on 6 April 2025, with comprehensive details on rebasing dates to be disclosed in the next Budget.
Under this regime, domicile will no longer be the primary criterion for IHT liability. Instead, IHT will apply to an individual’s global estate once they have been a UK tax resident for 10 years.
These changes will expand the range of properties subject to UK IHT for individuals and trusts.
The new rules won’t be applied retroactively, so if someone passes away before the effective date, their estate won’t be affected by these changes.
Furthermore, there won’t be any additional public consultation on these changes, as the Chancellor will take into account the feedback from the previous Conservative non-dom consultation.
Foreign Income and Gains scheme
For new arrivals to the UK, a four-year Foreign Income and Gains (FIG) scheme will offer 100 per cent relief on FIG during their first four years of tax residence.
However, this relief won’t be available if they were a UK tax resident at any point in the 10 years before their arrival.
UK residents who don’t qualify for the FIG scheme or opt not to use it will continue to be subject to capital gains tax (CGT) on their foreign gains as usual.
Temporary repatriation facility
Starting in April 2025, income and gains within settlor-interested trust structures will lose their tax-protected status.
To assist individuals previously taxed on the remittance basis, a new Temporary Repatriation Facility (TRF) will be introduced.
Those who have utilised the remittance basis will still be able to repatriate foreign income and gains accrued before 6 April 2025, benefiting from a reduced tax rate for a limited period after the remittance basis ends. The rate and duration of this facility will be structured to be highly attractive.
If you’ve used the remittance basis before, you’ll still have the chance to bring back foreign income and gains accrued before 6 April 2025 and benefit from a reduced tax rate for a limited time after the remittance basis ends.
For support with Inheritance Tax as a non-dom individual, please contact our team.