November 12, 2024
Confirmed reform to the non-UK domiciled tax system
The 2024 Autumn Budget announcements confirmed that the proposed reforms to the taxation system for non-UK domiciled individuals will come into effect from 6 April 2025. The current remittance basis of taxation will be replaced with a regime based on the number of years of tax residence.
New Foreign Income and Gains rules
For recent or new arrivals, a new four-year rule will come into force:
- From 6 April 2025, a foreign income and gains (“FIG”) regime will be available to individuals (regardless of their domicile) for their first four tax years of tax residence after a period of at least 10 years of non-UK residence.
- Those claiming to be taxed under the FIG regime will be fully exempt from UK tax on their FIG, even if these are remitted to the UK.
- Those arriving to the UK before 6 April 2025 may still be able to benefit from the new FIG regime if they are within their first four years of tax residence in 2025/26 (and subject to meeting the 10 years of non-UK residency condition).
- Settlors of non-UK trusts should not be taxable on the trust’s foreign income and gains whilst they remain subject to the FIG regime.
- Non-UK trust distributions are tax exempt for beneficiaries within the FIG regime.
Inheritance tax
- UK assets remain subject to inheritance tax, irrespective of tax residence.
- Non-UK assets will be subject to IHT if an individual has been resident in the UK for at least 10 out of the last 20 tax years. Once an individual leaves the UK they will remain subject to IHT on worldwide assets for up to 10 years, depending on how long they have been resident in the UK
- Trust assets will also be subject to IHT charges if the settlor meets the 10 out of 20 year test set out above.
Transitional provisions
The Government will put in place transitional arrangements for those benefitting from the current non-UK domiciled regime. As currently proposed:
- Resident non-domiciled individuals will be eligible to claim the FIG regime if they are still within their first four years of UK tax residence.
- Personally held foreign assets can be rebased to their 5 April 2017 value for capital gains tax purposes, provided the individual is not yet deemed domiciled as at 5 April 2025 and has claimed the remittance basis at least once since 2017/18.
- Under a Temporary Repatriation Facility (“TRF”), any individual who has historically claimed the remittance basis (prior to 6 April 2025) can remit untaxed FIG from previous years to the UK at a reduced tax rate.
- The TRF will allow individuals to “designate” an amount of FIG and pay tax at 12% (for amounts designated in 2025/26 or 2026/27) and 15% for designations in 2027/28. Those amounts can then be remitted with no further tax charge.
- It will also be possible to designate FIG in trust and company structures, which can then be appointed to the taxpayer with no additional personal tax implications.
