Major changes coming for non-doms

Domicile status is a difficult legal issue that is very important for tax. Very broadly, it is one’s country of natural or permanent home, which of course may be different to where someone is resident at any given time. To establish domicile status, the courts will look at where a taxpayer’s parents (and sometimes grandparents) were domiciled, as well as the taxpayer’s future intentions. Currently, if someone is UK-resident but domiciled outside the UK, they can claim ‘remittance basis’ on their tax return. This means that their foreign income and capital gains will not be taxable in the UK unless brought here. Once someone has been resident here for 7 of the previous 9 years, they have to pay an annual fee of £30,000 to use remittance basis. This increases to £60,000 when someone has been here for 12 of the previous 14 years. However, once someone has been resident for 15 of the last 20 years, they become deemed domiciled in the UK. At which point remittance basis is no longer available. This means that their worldwide income and gains are taxable in the UK, even if the funds are left overseas. The other advantage of non-dom status is that, for Inheritance Tax (IHT). Only UK assets come within the net of the tax. In contrast, those who are UK-domiciled are subject to IHT on their worldwide assets. For example, if a non-dom dies owning shares in an Indian company and a holiday home in France, neither asset will be subject to UK IHT. If they are owned by a UK-domiciled taxpayer, they will be subject to UK IHT.
It seems that all of this is going to change from 6 April next year. Irrespective of the result of the General Election. Labour has a long-stated intention to abolish remittance basis and this idea has now been taken up by the Conservatives too. The key points of the changes that the latter have proposed are as follows:
1. From 6 April 2025, the current remittance basis of taxation will be abolished for UK resident non-doms. This will be replaced with a new 4-year foreign income and gains (FIG) regime, for individuals who become UK tax resident after a period of 10 tax years of non-UK residence.
2. Qualifying individuals:
• will not pay tax on FIG arising in the first 4 tax years after becoming UK tax resident; and
• will be able to bring these funds to the UK free from any additional charges. They will pay tax on UK income and gains, as is the case for non-domiciled individuals now.
3. Individuals who, on 6 April 2025, have been tax resident in the UK for less than 4 years (following 10 years of non-UK tax residence) will be able
to use this new regime for any tax year of UK residence in the remainder of those 4 years.
4. Individuals who move from the remittance basis to the arising basis on 6 April 2025 and are not eligible for the new 4-year FIG regime (i.e. have been here for more than four years) will, for 2025/26 only, pay tax on 50% of their foreign income. This reduction applies to foreign income only, not to foreign chargeable gains. For 2026/27 onwards, tax will be due on all worldwide income as it arises.
5. From 6 April 2025, an individual who is not, or who later ceases to be, eligible for the new 4-year FIG regime will be taxed on foreign gains fully, irrespective of whether the funds are brought to the UK.
6. From 6 April 2025, individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility (TRF), which will be available for tax years 2025/26 and 2026/27 only.
7. The government intends to move IHT to a residence-based system. It is envisaged that the new rules will involve charging IHT on worldwide assets:
• when a person has been resident in the UK for 10 years (the “residence criterion”); and

• for 10 years after leaving the UK(the “tail” provision).

8. The design of the system will be subject to consultation, but UK assets will remain in charge on the same basis as at present, regardless of residence.
It is likely that, should they form the next government, Labour will introduce similar rules, but probably with less generous transitional provisions (e.g. the 12% TRF). This fundamental reform will have a big impact on anyone from overseas or UK residents who are thinking of emigrating. Although the final details are still to be decided. All such people should consider how these changes will affect their tax liability in the UK.

Please contact us if you have any concerns in this area.