Spring Budget 2024 – Revolutionary shifts for non-doms big changes ahead

As speculated, the non-dom regime featured in the Budget with the announcement of major changes from 6 April 2025. Non-UK domiciled individuals (‘non-doms’) are broadly individuals whose permanent home is outside the UK.

The end of the remittance basis

From 6 April 2025, the remittance basis for non-doms will be abolished and replaced with a new residence-based regime.

The existing remittance basis allows non-doms to shelter their foreign income and capital gains from UK tax provided they remain offshore. The last tax year in which a non-dom can claim the remittance basis will be 2024/25. This will provide a window of opportunity for some to rearrange their affairs in anticipation of the changes ahead.

New arrivers (after 6 April 2025)

Under the new scheme, arrivers will not pay UK tax on foreign income and gains for the first four years of residence. 10 consecutive years of non-residence is required prior to arrival in order to qualify. This will be available to all individuals who meet the criteria, irrespective of their domicile status. UK source income and capital gains will remain subject to UK tax.

During this four year period, foreign income and capital gains can be brought to the UK tax free, which is a relaxation of the current remittance basis rules.

As is the case under the remittance basis, if you elect for this new regime, you will lose your entitlement to the income tax personal allowance (currently £12,570) and capital gains tax annual exemption (£3,000 from April 2024). It will also continue to be an annual decision as to whether an election is made.

There is currently a relief, known as Overseas Workday Relief, which provides non-doms with income tax relief for earnings from employment carried out overseas for their first three years of residence. This relief will continue to be available for those who meet the criteria for the new regime but with the ability to remit these earnings to the UK tax free, which is another relaxation of the existing rules.

Recent arrivers (between 2022/23 – 2024/25)

Existing tax residents who have been in the UK for fewer than four years on 6 April 2025 can still benefit from this new regime until the end of their fourth year of residence.

For example, an individual who became resident in the UK for the first time in 2022/23 will have been resident in the UK for up to three tax years on 6 April 2025. They will be able to benefit from the new regime for 2025/26 because this is their fourth year.

After your fourth year of residence

From 6 April 2025, regardless of where an individual is domiciled, anyone who has been tax resident in the UK for more than four years will pay tax on their newly arising worldwide income and capital gains, as is the case for all other UK residents.

Foreign income and capital gains that arose while a non-dom was taxed on the remittance basis will remain liable to UK tax upon remittance. It will therefore continue to be important to maintain offshore segregated accounts.

For many non-doms a key concern is IHT exposure, which under existing legislation can be limited to their UK situs assets. It was announced that IHT will also be moving to a residence-based scheme from 6 April 2025. However, this area remains under consultation. It is envisaged that the new rules will involve charging IHT on worldwide assets after 10 years of residence, but this has not yet been confirmed. Linked to this, Lisa Spearman has considered in her article the future of excluded property trusts.

Opportunities

In recognition that major changes are on their way, the government has announced some transitional provisions to ease non-doms into the new regime.

This includes:

• For those individuals who will lose access to the remittance basis, a 50% reduction in the amount of their foreign income that will be subject to tax in 2025/26 will be available.
• Such individuals who have previously claimed the remittance basis will be eligible for rebasing of their foreign assets to 5 April 2019, thereby eliminating any capital gain attributable to a prior period upon a disposal under the new regime.
• Individuals who have accrued foreign income and gains (FIG) offshore under the remittance basis prior to 6 April 2025 will have the opportunity to bring those funds to the UK in 2025/26 and/or 2026/27 at the cost of a 12% UK tax charge under a new Temporary Repatriation Facility. If foreign tax has already been paid on these funds, it is possible that credit for this tax will eliminate the UK tax charge in any event.
• Although existing protections to settlors of offshore trusts will cease to apply to FIG arising in the trust on or after 5 April 2025, protection from UK tax will continue for FIG which arose prior to this date. This is provided no distributions or benefits are paid to individuals who have been UK resident for more than 4 years (see William Welch’s article for more details).

Understandably these major changes will cause concern for UK resident non-doms, particularly those taxed on the remittance basis. We will have to wait for further details regarding the new regime, in particular the mechanics behind the transitional provisions. If affected by these changes, please do get in touch. Fortunately, there is a just over a year to plan for these changes, with some transitional opportunities to take advantage of.

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