The UK government has unveiled significant changes to its taxation system for non-domiciled individuals (non-doms). These reforms aim to introduce a more residence-based approach, impacting both income tax and inheritance tax. Here's a breakdown of the key points:
Foreign Income and Gains (FIG): A New Era
Starting 6 April 2025, preferential tax treatment based on domicile status for foreign income and gains (FIG) will be abolished.
Fresh Starts: The 4-Year FIG Relief: New arrivals to the UK will be eligible for a generous tax break. They'll enjoy 100% relief on their FIG for the first four years of UK tax residence, provided they haven't been UK tax residents in the previous 10 years.
End of Protected Trusts: Non-doms and deemed domiciled individuals who don't qualify for the 4-year FIG relief will lose the current protection from income and gains tax on income arising within trust structures.
Modernising Anti-Avoidance Measures
The government will review existing offshore anti-avoidance legislation, aiming to simplify and strengthen these rules. Expect further details in due course.
Transitional Arrangements for Existing Non-Dom Residents
No 50% Tax Reduction: The previously proposed 50% tax reduction on foreign income for individuals losing remittance basis access in the first year of the new regime has been scrapped.
Capital Gains Tax (CGT) Adjustments: Non-dom individuals who used the remittance basis previously can rebase their foreign capital assets for CGT purposes. The rebasing date for calculating these adjustments will be announced at the Budget.
Pre-April 2025 Income and Gains
Any FIG arising before 6 April 2025, while under the remittance basis, will still be taxed upon remittance to the UK.
Temporary Repatriation Facility (TRF)
A new temporary program will allow those who previously used the remittance basis to bring back pre-April 2025 FIG at a reduced tax rate. The specific rate and duration of the TRF will be confirmed at the Budget.
Inheritance Tax (IHT) Reform
The UK plans to shift its IHT system from a domicile-based approach to a residence-based one, starting 6 April 2025. Here's what to expect:
10-Year Residency Test: Broadly speaking, non-UK assets will be subject to UK IHT if the individual resided in the UK for ten years before the tax year when the chargeable event (including death) occurs. This rule will extend to ten years after leaving the UK.
End of Excluded Property Trusts: The government intends to phase out these trusts that currently shield assets from IHT. Details on how existing trusts will be handled will be announced at the Budget.
Next Steps
Further information on stakeholder engagement sessions related to IHT and Overseas Workday Relief (OWR) will be available on gov.uk shortly.
Overall, these changes represent a significant shift in the UK's tax treatment of non-domiciled individuals. Understanding these reforms is crucial for anyone who requires advice or guidance with regard to their UK Domicile Status & the implications as to where their assets (including bank accounts) are held.
For more information and advice for concerning your specific circumstances, please contact us without delay by calling 26 600780 or emailing info@maplebrookservices.com.