Non-Dom Tax Changes

The tax regime for non-UK domiciled taxpayers is about to change very signficantly. Reporting for the 2024/25 tax year will be the same as previously but the summary below shows the changes from April 6 2025. Here is a summary of the non-dom tax changes announced by the government.

The new Foreign Income and Gains (FIG) regime

1. The remittance basis will cease on 5 April 2025 and will be replaced by a new four-year ‘Foreign Income & Gains’ (FIG) regime.
2. UK tax residence prior to 5 April 2025 will be taken into account, as a result any non-domiciled tax payers who became resident in 2021/22 or later will not be entitled to use the new rules. Where the new rules do not apply, UK tax resident individuals will be taxed on worldwide income and gains, whether or not remitted to the UK.
3. UK domiciled tax payers non resident for at least 10 years will be entitled to use the new rules on any return to the UK.
4. Under FIG, foreign income and gains will be fully exempt from UK taxation. At present, this only applies if the foreign income and gains are not remitted to the UK, following a remittance basis election.
5. The categories of foreign income and gains that are exempt are broadly similar to those under the current rules, with some exceptions. For example, foreign partnership profits will only be exempt if the trade is conducted wholly outside the UK. The draft legislation also excludes some categories of income.
6. A FIG claim will require all foreign income and gains to be disclosed on a self assessment return, significantly increasing the compliance burden compared to the remittance basis.
7. A FIG claim will result in the loss of the personal allowance, and entitlement to foreign losses.
8. Foreign income and gains arising prior to 5 April 2025 will continue to be taxed under the remittance basis rules, subject to a Temporary Repatriation Facility set out below.
9. From 6 April 2025, income and gains arising to a settlor interest trust will no longer be protected, and will be assessed on the settlor, unless qualifying under the new FIG regime. Trust income arising prior to 5 April 2025 will be taxed on UK resident settlors and beneficiaries who do not benefit from FIG, under the usual matching rules.
10. Overseas workday relief will be retained for the four year period where applicable, with the qualifying income completely free of UK tax, although there will be a cap on the maximum amount that can be claimed.

Temporary Repatriation Facility

There will be a temporary three year window to designate previously untaxed income and gains arising since UK tax residence, and not taxed due to a remittance basis claim,  for a lower rate of taxation than exists under current rules, in the event that such foreign income and gains are likely to be remitted to the UK in future. Briefly the rules are as follows:

1. The reduced tax rate is 12% for elections made from 6 April 2025 to 5 April 2027, and 15% for elections made from 6 April 2027 to 5 April 2028.
2. Once an election is made, relevant funds can be remitted to the UK without any further tax charge. The designed funds can be remitted either before or after the three year period ends on 5 April 2028.
3. Similar rules will apply to foreign trusts that have accumulated income and gains that have not yet been matched to capital payments.
4. An election to make a designation will be on the amount of foreign income or gains net of any overseas tax, as a result there will be no credit available for any foreign tax suffered.

Capital gains tax rebasing

Current remittance basis users may have the opportunity to rebase the original cost of foreign assets as follows:

1. The scope is limited and will only apply to certain relevant assets and rebase original base cost to the market value at 5 April 2017.
2. It can only apply where an individual is not UK domiciled or UK deemed domiciled at any time before the tax year 2025/26 and
3. A remittance basis claim will need to have been made for at least 1 year during the period 6 April 2017 to 5 April 2025.

Considerations ahead of the new rules

1. Possible advantages of the current rules, perhaps by bringing income or gains into the current tax year to 5 April 2025, if there is no intention of making a remittance, to avoid the arising basis from 6 April 2025. Or if there is a possibility of making a remittance, by using the lower rates under temporary repatriation facility, and not the higher rates under the arising basis from 6 April 2025.
2. Reviewing personally held assets where the worldwide taxation basis will apply, possibly to reduce taxable income, or making gains instead of income.
3. Reviewing offshore structures e.g. limited companies, where non-UK income and gains could be attributed UK resident individuals who settled or provided funding to the relevant structures.
4. Reviewing historic unremitted income or gains since coming to the UK when a remittance basis claim was made, with a view to using the Temporary Repatriation Facility.
5. If deciding to leave the UK before the new rules come into effect, clarifying any ongoing UK tax obligations.
6. Whether the FIG rules apply for a time at least post 6 April 2025, or whether worldwide income and gains need to be declared, additional compliance will be required for UK tax filing. Consideration could be given to perhaps simplifying offshore investment structures, to reduce any additional compliance costs.

There have been hints that the government may soften some of the provisions but major amendments to the non-dom tax changes are not expected.