Changes for Non-domiciled Individuals Including the End of the Remittance Basis

Overview

The remittance basis will be abolished from 6 April 2025 and be replaced by a new 4-year foreign income and gains regime for new UK arrivals and transitional arrangements for current non-domiciled individuals (non-doms) potentially allowing: capital assets to be rebased at April 2019, UK tax on half of foreign income for 2025/26, and 12% tax when remitting foreign income and gains (from before April 2025) to the UK in 2025/26 or 2026/27.

Internationally mobile workers could be impacted by Overseas Workday Relief changes.

Trusts taxation is impacted and non-doms can only create trusts excluded from UK Inheritance Tax until April 2025 (assuming that this date is not brought forward).

Non-doms should consider tax planning now in light of the array of incoming changes to the UK tax system (which may be altered by a future government). Please get in contact for expert tax planning advice.

Non-doms could consider whether it would be worthwhile bringing forward non-UK income and capital gains so they are taxed in the 2024/25 tax year, allowing the remittance basis to be claimed (the cost of claiming depends on their UK residence history). Individuals could also make changes to their time spent in the UK and ties to the UK in order to cease being UK resident for tax purposes, which would mean that their non-UK income and capital gains would not be taxable in the UK.

4-Year Foreign Income and Gains Regime for New UK Arrivals

The remittance basis for UK resident non-doms will be abolished from the 2025/26 tax year (the year commencing 6 April 2025). This system based on an individual’s domicile will be replaced by a 4-year Foreign Income and Gains (FIG) regime based on an individual’s residence. Where individuals arrive in the UK after 10 consecutive tax years of non-residence, they can annually claim for 4 tax years to forgo their Income Tax Personal Allowance and Capital Gains Tax Annual Exempt Amount and have their FIG be exempt from UK tax (regardless of whether remitted to the UK).

For the purpose of this residence-based exemption, the residence of an individual will be determined by the Statutory Residence Test (not by treaty residence). Split years (e.g. a partial tax year of UK residence) will count as one of the 4 years. An individual does not have to be UK resident throughout the 4 year period (i.e. they can claim the exemption if they leave and then return to the UK in the 4 year period).

Transitional Arrangements for Non-doms

There are transitional arrangements for non-doms who have claimed the remittance basis and will be ineligible for the 4-year FIG scheme.

Non-doms leaving the remittance basis will only pay UK Income Tax on 50% of their foreign income for the 2025/26 tax year (however, this is one the incoming rules that a Labour government may cancel) Foreign capital gains will be subject to UK tax, however, the Capital Gains Tax can be reduced by rebasing the base cost of assets to their 5 April 2019 value where the remittance basis was claimed previously.

For the 2025/26 and 2026/27 tax years, individuals who have claimed the remittance basis will be able to remit FIG that arose before 6 April 2025 to the UK via the Temporary Repatriation Facility (TRF), incurring a relatively low UK tax rate of 12% (FIG that arose within trusts will be excluded from the TRF). To facilitate this, the ordering rules for ‘mixed funds’ will be revised (full details currently unavailable).

Overseas Workday Relief (OWR)

Previously for the first 3 years of UK residence, a non-domiciled worker with UK and overseas employment duties could claim OWR and not be subject to UK Income Tax on income from overseas duties if the earnings were not remitted to the UK.

From 6 April 2025, domicile will be irrelevant for OWR and earnings from foreign employment duties for the first 3 years of UK residence will be free from UK tax, regardless of whether these earnings are remitted to the UK.

Previously OWR could potentially be claimed again after three consecutive years of non-residence, but this will become 10 consecutive years of non-residence.

The application of UK National Insurance Contributions to such workers is unchanged and will continue to be assessed under a separate system.

Inheritance Tax & Trusts

Non-doms can only create trusts excluded from UK Inheritance Tax (IHT) until April 2025. It is worth noting that a Labour government may make changes that would bring the foreign assets of excluded property trusts within the scope of UK IHT or that could potentially bring forward this April 2025 deadline.

Grunberg & Co are well placed to assist trustees with this and other planning in light of the recent and incoming changes to the UK tax system, including changes to reporting requirements and tax-free limits.

In future, IHT will likely move from a domicile-based system to a system based on being UK resident for 10 years.

FIG arising until 6 April 2025 in protected non-resident trusts will not be taxed unless distributions or benefits are paid to individuals who have been UK resident for over 4 years.

From 6 April 2025, non-domiciled and deemed domiciled settlors of settlor interested trusts will be directly taxed on trust FIG.

From 6 April 2025, the remittance basis cannot be claimed by UK resident non-dom beneficiaries in respect of pre-6 April 2025 foreign income and gains matched with trust distributions to UK resident beneficiaries.

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