Changes to the Remittance Basis and Inheritance Tax Rules for Non-Doms: What You Need to Know

The UK government announced significant changes to the remittance basis of taxation and deemed domicile rules, effective from April 2025. These reforms alter how non-UK domiciled individuals (non-doms) are taxed on foreign income, gains, and inheritance tax (IHT). Below is a detailed analysis of the changes and their implications.

1. Overview of the Current Rules

Domicile and Deemed Domicile

• Common Law Domicile:
  • Assigned at birth (domicile of origin).
  • Typically reflects the domicile of one’s father (if parents are married).
  • Domicile can change through deliberate actions (e.g., establishing a domicile of choice).
• Deemed Domicile:
  • An individual becomes deemed domiciled for tax purposes if:
    • Resident in the UK for 15 of the last 20 tax years, or
    • Resident for 3 years following departure from the UK (the “tail”).

Remittance Basis

• Non-Doms and Foreign Income/Gains (FIGs):
  • Non-doms can elect to be taxed on the remittance basis, paying UK tax only on FIGs brought into (or “remitted” to) the UK.
  • Automatic eligibility applies if unremitted FIGs are below £2,000.
  • Charges for Using the Remittance Basis:
    • £30,000 annually after 7 of the last 9 years of residence.
    • £60,000 annually after 12 of the last 14 years.
  • Personal allowances are forfeited, and dividend income is taxed at earned income rates.

Excluded Property Trusts:

• Non-doms can establish trusts with non-UK situs assets, remaining outside the scope of IHT even if they or their spouse benefit.
• From 2017, such trusts remain protected if not “tainted” by new contributions, and the settlor remains non-domiciled under common law.

2. Key Changes from April 2025

Shifting from Domicile to Physical Residence

• Domicile Removed:
  • The basis for the remittance regime shifts to physical residence in the UK.
• First Four Years of Residence:
  • Non-doms newly resident in the UK (having been non-resident for the past 10 years) can remit FIGs tax-free during their first 4 years.
• After Four Years:
  • Income and gains will be taxed on the arising basis, i.e., worldwide income and gains taxed as they arise.

Temporary Repatriation Facility

• Historic FIGs:
  • For 2025/26 through 2027/28, individuals can remit historic FIGs at a 12% tax rate.
  • Includes capital gains on assets rebased to April 2017 values.
• Extension to Trusts:
  • Trusts can also benefit from this facility under revised proposals.

Capital Gains Rebased

• Rebasing to April 2017 (previously April 2019):
  • Capital gains tax (CGT) on assets disposed of post-April 2025 will consider 2017 valuations.

Income Discounts Removed

• No 50% Reduction:
  • Initially proposed for remitted income in 2025/26, this reduction has been scrapped.

Inheritance Tax Changes

• 10-Year Rule:
  • Non-doms become subject to IHT after 10 years of residence.
  • A tapered “tail” applies after leaving the UK, gradually reducing exposure over the subsequent 10 years.
• New Trusts:
  • Trusts created after April 2025 will adopt the settlor’s residence for tax purposes.
  • Transitional rules will apply to existing excluded property trusts.

3. Practical Implications for Non-Doms

For New UK Residents

• The four-year grace period allows a tax-free opportunity to remit FIGs, making it attractive for those considering relocation to the UK.
• The temporary repatriation facility provides a low-tax window to clean up historic income and gains.

For Long-Term UK Residents

• The removal of the domicile basis may lead to higher tax bills as individuals lose the ability to shelter FIGs.
• The 10-year IHT rule increases exposure to UK inheritance taxes, especially for those intending to stay long-term.

For Trusts

• Existing excluded property trusts remain protected if not tainted, but careful management is crucial.
• New trusts face stricter residency-based rules, limiting their use as a tax shield.

4. Key Considerations and Actions

Plan Ahead

• Review your tax position and plan asset disposals before the April 2025 implementation.
• Take advantage of the temporary repatriation facility to remit FIGs at a reduced rate.

Review Trusts

• Ensure existing excluded property trusts are compliant with anti-tainting rules.
• Consider setting up trusts before April 2025 if beneficial.

Seek Professional Advice

• The shift from domicile to residence complicates tax planning. Consult a tax advisor to navigate the changes effectively.

Monitor Transitional Rules

• Stay updated on the transitional rules for excluded property trusts and other nuances announced closer to the implementation date.

Conclusion

The changes to the remittance basis and IHT rules represent a significant shift in how non-doms are taxed in the UK. While the temporary facilities offer opportunities for tax-efficient remittances, the long-term implications require careful planning. For non-doms considering or currently residing in the UK, understanding and adapting to these changes is essential to minimize tax liabilities and protect wealth.

For expert guidance on navigating these changes, Merranti Accounting can provide tailored advice to optimize your tax position. Contact us to discuss your unique circumstances.