Get ready for changes to non-dom tax regime - Scott Webster

In particular, the remittance basis, which enabled certain non-doms to exclude overseas income and gains from their UK tax computation provided they were not brought into the UK, is to be abolished.

Whilst changes will impact future arrivals to the UK, they will also impact non-doms currently residing in the UK who have been claiming the remittance basis.

Proposed Changes

From 6 April 2025, a new residence-based system is proposed to come into effect. This foreign income and gains (“FIG”) regime will apply to individuals who became UK tax-resident after a period of ten tax years of non-UK residence. An individual’s UK tax residence position for each year will continue to be determined by the Statutory Residence Test (“SRT”).

Where applicable, individuals will be taxed only on their UK source income and gains in the first four tax years after becoming UK tax-resident. This will also apply to those who have arrived in the UK pre-6 April 2025 but who are still within the first four years of UK residence.

FIGs arising in that period will not be subject to UK tax and, unlike the current remittance basis regime, can be brought into the UK without incurring any UK tax charge. In addition, there will be no charge to access the FIG regime other than the loss of the Personal Allowance and capital gains annual exemption.

It should be noted that claims to use the FIG regime should be made for each year to which it is to apply. There is no requirement to claim it in all four years of residence and so individuals have the choice to claim it on an annual basis in each of those years.

As a transitional measure, existing non-doms will only be assessed on 50 per cent of their foreign income in the first tax year of the new rules. As it stands, this would only appear to apply to those who claim the remittance basis in the year to 5 April 2025 and doesn’t extend to foreign capital gains, which will be taxed in full.

Positively, overseas Workday Relief (“OWR”) will remain available to employees for the first three tax years of UK residence provided they opt-in to the new FIG regime.

Potential Planning Opportunities

Temporary Repatriation Facility (TRF): The rules for remitting pre-5 April 2025 FIGs are to be relaxed for the 2025/26 and 2026/27 tax years, enabling UK resident individuals to remit FIGs previously covered by the remittance basis to the UK for a 12 per cent tax charge. The current mixed fund rules, used to identify the types of income and gains brought to the UK will also be relaxed for those who use the TRF.

Capital Gains Rebasing: Individuals who have claimed the remittance basis and remain non-UK domiciled at 5th April 2025, will have the option to rebase foreign assets that they held at 5th April 2019 for any future disposals from 6th April 2025. Those assets would then have a cost equal to the 5th April 2019 value and we await further details on this point.

Potential changes to Inheritance Tax Regime

It has also been announced that the government are considering switching to a residence-based system for Inheritance Tax; replacing the current domicile-based system. These changes are under consideration and will be subject to consultation.

Scott Webster is Senior Tax Manager, Turcan Connell