Tax Reforms for UK Non-Doms Explained

Tax Reforms for UK Non-Doms Explained

Back in October, the Chancellor, Rachel Reeves, delivered her autumn statement which confirmed the abolishment of the non-domicile tax regime from 6^th April 2025. The announcement brings significant changes, forcing non-UK domiciled individuals to take a thorough review of their position.

Non-Dom Status Explained

Where Are You Domiciled?

Domicile is a nuanced legal concept determined by the country an individual considers their permanent home or has a substantial connection with. For tax purposes, two primary types of domicile status are particularly relevant. The first is Domicile of Origin, which is acquired at birth, typically following the father’s domicile. The second is Domicile of Choice, which is established when an individual moves to a new country with the intention of residing there permanently or indefinitely.

Residency Status

An individual’s domicile status is entirely separate from their residency status, which is determined by the criteria outlined in the Statutory Residence Test (SRT). Residency in the UK depends on factors such as:

1. the number of days a person spends in the country,
2. whether they undertake work here,
3. and their connections to the UK (including family presence and accommodation availability).

Taxing Non-Doms in the UK

Current Tax Rules for Non-Doms

The UK’s non-domiciled tax rules were originally designed to offer tax advantages to individuals who are resident in the UK but not domiciled here. Under the current system, non-doms can choose how their foreign income and gains are taxed in the UK, either through the Arising Basis or the Remittance Basis.

The Arising Basis taxes all worldwide income and gains as they arise. Meanwhile, the Remittance Basis taxes UK income and gains as they arise, but foreign income and gains are only taxed when they are brought into or enjoyed in the UK (remitted).  This is regardless of whether that be cash, or an asset purchased with the proceeds of foreign income and gains. However, once an individual has been a UK resident for 15 out of the last 20 years, they become deemed domiciled and lose access to the remittance basis, with worldwide income and gains taxed on the same basis as UK domiciled individuals.

What’s Changing for UK Non-Doms?

The Autumn Statement announced the abolishment of the remittance basis of taxation, which was previously linked to an individual’s domicile status. In its place, a new tax regime based on residence has been introduced.

Under this regime, new arrivals to the UK will receive 100% relief on foreign income and gains during their first four years of UK tax residence, provided they have not been UK tax residents in any of the ten consecutive years prior to arrival. It should be noted however that such income and gains must be nominated each year to receive such relief, which is a change from the previous remittance basis. After these 4 years, foreign income and gains are then taxed on the arising basis.

Non-Dom’s and Off-shore Trusts

From the 6^th April 2025, non-domiciled and deemed domiciled individuals will no longer benefit from tax protection on foreign income and gains within settlor-interested trust structures, if they do not qualify for the four-year relief.

Non-Dom Foreign Income and Gains

Any foreign income and gains that arose on or before 5^th  April 2025 while an individual was taxed under the remittance basis, will remain taxable upon remittance to the UK under the existing rules. This includes remittances made by those eligible for the new four-year foreign income and gains relief.

Rebasing Foreign Assets

As a transitional measure for Capital Gains Tax (CGT), individuals who are current or past users of the remittance basis can rebase their foreign assets to their market value as of 5^th April 2017, as long as they held them at that date.

Temporary Repatriation Facility

A Temporary Repatriation Facility will be introduced for individuals who have previously claimed the remittance basis, allowing them to designate and remit foreign income and gains that arose before the changes at a reduced tax rate. This facility will be available for a limited period of three tax years, starting in 2025/26, with a rate of 12% applying for the first two years and increasing to 15% in the final year of operation.

Inheritance Tax for Non-Dom’s

The domicile-based system of Inheritance Tax (IHT) is being replaced with a new residence-based system, significantly impacting how non-UK property is treated for UK Inheritance Tax purposes. This change will affect both individuals and trusts, bringing certain non-UK assets into the scope of UK Inheritance Tax based on the number of years of tax residency at the date of the IHT event, giving rise to a charge rather than their domicile.  There may also be a period post departure from the UK where IHT continues to be applicable.

Overseas Workday Relief

Overseas Workday Relief is being extended to align with the new four-year foreign income and gains regime, allowing eligible individuals to benefit for up to four years. However, the relief will now be capped, with the maximum claim limited to the lower of £300,000 or 30% of an individual’s total employment income, introducing a financial limit to the benefit.

Tax Reforms for UK Non-Doms

Seeking Professional Advice

In light of the changes to the tax reforms for UK non-doms, it’s essential to take the time to fully understand how the evolving tax rules may affect their financial position. Key considerations include assessing whether any UK assets are currently standing at a gain, reviewing existing tax structures, and evaluating the potential impact on double taxation and the treatment of assets. To ensure you’re prepared and making the most of available opportunities, speak with a tax advisor who can help you navigate these changes and optimise your strategy.

Discover more on residency and domicile tax advice here.