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Labour’s First Non-Dom Move

The new Labour Government have made their first official announcement on the non-dom reforms

The new Government have made their first official announcement.

The new Labour Government have acted swiftly in making their first official announcement on the non-dom reforms, publishing a short policy paper.

What’s happened?

The key headline is that the Government has committed to introducing the non-dom reforms from 6 April 2025, and in largely the same form as announced by Jeremy Hunt in his last Spring Budget as Chancellor. However, and frustratingly for non-doms and their advisors, the detailed rules will not be confirmed until 30 October 2024 – the now confirmed Autumn Budget date and Rachel Reeves’ debut as Chancellor. This timing leaves five months to digest the detail and plan for the changes. Non-doms should now be reviewing their affairs and structures to get ahead of the changes taking effect from the start of the new tax year.

What do I need to know?

The current non-dom rules will be replaced with a four-year Foreign Income and Gains regime. For individuals becoming tax resident in the UK, provided that they have not been UK resident in any of the previous 10 years, for their first four tax years of residence the regime will provide 100% relief from UK tax on overseas income and capital gains. The new regime will be simpler in its operation and will allow individuals to freely remit their overseas monies into the UK. For new arrivals, this will put an end to the remittance basis concept.

For workers coming to the UK, Overseas Workdays Relief will helpfully be retained, which should be simpler in its practical operation with the new Foreign Income and Gains regime. The exact design of the new Overseas Workdays Relief regime will be considered through engagement with stakeholders.

However, non-doms currently living in the UK will now have to carefully consider their tax affairs as the Government have curtailed some of the original transitional provisions.

  • The 50% reduction of foreign taxable income in 2025/26 will no longer be available
  • A rebasing provision for capital gains will be introduced, but the rebasing date of 5 April 2019 will be reviewed – it is expected that the revised date will be closer to 6 April 2025, which potentially avoids having to affect a transaction in the current tax year to uplift the capital gains base cost of a foreign asset.
  • The Temporary Repatriation Facility will be introduced, but the tax rate and length of time will be reviewed – this suggests that the tax rate could be higher than 12%, but the time period made longer. Rather helpfully, the policy paper notes that the Temporary Repatriation Facility could be extended to monies in overseas structures, such as trusts and companies, which could make it easier to unwind such structures if that was the appropriate action.

What about trust structures?

There remains significant uncertainty around the tax treatment for offshore trusts. The Government has confirmed that, from 6 April 2025, protection from tax on foreign income and gains arising within settlor-interested trust structures will no longer be available for non-doms and deemed domiciled settlors who do not qualify for the four-year Foreign Income and Gains regime.

The explicit use of the term “settlor-interested” suggests that non-settlor interested trusts may not be impacted in the same way. With solely tax in mind, it may therefore be possible to exclude the settlor and their spouse (and possibly minor children) from benefitting in order to retain the current tax treatment; however, this will only be known when more detail is published at the Autumn Budget.

From an Inheritance Tax perspective, the excluded property trust regime will be abolished. Helpfully, there is an acknowledgement from the Government that such trusts will have already been established under the current law, and therefore policymakers will look at transitional arrangements following engagement with stakeholders.

Is there any more certainty on Inheritance Tax?

The Government have confirmed that, from 6 April 2025, a new test for Inheritance Tax in relation to non-UK assets will be introduced. This will be based on 10 years of tax residency and will keep someone within the scope of Inheritance Tax for 10 years after leaving the UK – but the Government will engage further on the operation of the new rules. The suggestion that a 10-year tail for Inheritance Tax will remain is disappointing, and non-doms coming up to their tenth year of UK residency will need to consider their options carefully.

Under the original proposals from the Conservative Government, the intention had been to publish a specific consultation on Inheritance Tax. This will no longer take place and the Government will instead use feedback from the HMRC listening exercises which took place in the spring to form the final policy, as well as further external engagement over the summer. This move strongly suggests that the new Labour Government wants to push through the reforms as soon as possible, after some pressure from the non-dom community to delay and revisit the proposals.

Anything else?

Finally, there will be a welcome review of the offshore anti-avoidance legislation concerning Transfer of Assets abroad and settlements, which hopefully will make the practical operation of these rules simpler. This review appears to be largely separate from the non-dom reforms, as the Government say it is unlikely to result in any changes before 6 April 2026.

What should I do now?

The Government’s new policy paper doesn’t tell us much more than what we already knew, but there is clear intent from the Labour Government to progress the changes as soon as possible – and largely, to be effective from 6 April 2025. In some ways, it is helpful that the new Government have clarified their position, as speculation around possible delays and changes to the policy may have delayed planning actions. However, the uncertain position concerning offshore trusts is frustrating and the unanswered questions will remain that way until at least the Autumn Budget on 30 October 2024.

With a firm line now drawn, non-doms should look now to plan ahead as best possible, as there will be a short window after the Autumn Budget to implement any restructuring actions.

Would you like to know more?

If you have any questions about the above, please get it touch with your usual Blick Rothenberg contact or John Bull using the form on this page.

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