The end of the UK non-domicile regime

From 6 April 2025, the Government has confirmed that the non-domicile regime will end which means the concept of domicile and the remittance basis of taxation will cease to exist. This seismic shift has led many individuals to review their tax position. Although there is currently no legislation, this briefing note outlines what is confirmed, what is still unknown, and what potential planning opportunities could be considered by those affected.

Current rules

UK tax residents are subject to tax in the UK on their worldwide income and gains. However, non-domiciles currently have the option to only be subject to tax on their UK sourced income and gains, and overseas income and gains which are brought into the UK (i.e. the remittance basis). In terms of inheritance tax (IHT), non-doms are only subject to UK IHT on their UK assets.

After a non-domiciled individual has been resident in the UK for longer periods of time, they are required to pay a fee each year (of up to £60,000) to claim the remittance basis known as the ‘remittance basis charge’. Once an individual has been UK resident for 15 of the previous 20 tax years they become ‘deemed domiciled’ and can no longer access the remittance basis. Once an individual is deemed domiciled, they are also subject to UK IHT on their worldwide estate.

At present, non-domiciled individuals can benefit from favourable rules if their assets are held in trust. Broadly, there is no Inheritance Tax on non-UK assets held in trust, and non-UK income and gains arising within the trust are not typically liable to UK tax, even after the individual has become deemed domiciled and can no longer access the remittance basis.

Proposed changes

Foreign income and gains rules

The new regime will be residence-based, and the concept of domicile will be abolished. From 6 April 2025 (2025/26 tax year), non-domiciled individuals will no longer be able to claim the remittance basis of taxation. Therefore, all UK residents (except for those eligible for the new Foreign Income and Gain (FIG) regime below) will be subject to tax on their worldwide income and capital gains including carried interest from 6 April 2025.

From 6 April 2025, a new FIG regime will be introduced. The FIG regime is only available for individuals who have been UK tax resident for less than 4 tax years after a period of 10 years of non-residence. Qualifying individuals will not pay tax on FIG arising in the first four tax years after becoming UK tax resident and will be able to bring these funds to the UK free from any additional charges. Similarly to the current regime, taxpayers who elect into the FIG regime will not benefit from the personal allowance or the Capital Gains Tax (CGT) annual exemption.

After individuals have been UK resident for four tax years the FIG regime will no longer be available, and they will be taxed on their worldwide income and gains.

Transitional reliefs

There may be some transitional reliefs for those non-doms who do not qualify for the four-year FIG regime. The recent Labour policy document dated 29 July 2024 has confirmed the following:

1. There will NOT be a 50% tax reduction on foreign taxable income for the 2025/26 tax year as was proposed by the previous Government.

2. The ‘Temporary Repatriation Facility’ (TRF) will be available where FIG arose prior to 6 April 2025 to former remittance basis users. The Government is considering extending the FIG to include stockpiled gains and relevant income within offshore trusts.

The Conservatives had proposed a flat rate of 12% but Labour have not yet committed to a rate or timeframe for the TRF.

3. Rebasing of foreign assets will be available, but the rebasing date is unknown. It is expected that this will be announced at the Autumn Budget on 30 October 2024.

Protected trusts and inheritance tax

From 6 April 2025, the protected trust regime will be abolished. Therefore, non-domiciled individuals who have settlor-interested trusts and are not eligible for the four-year FIG regime, will be affected. FIG arising in such trusts will broadly be taxable on the UK resident settlor as it arises to the trust.

Individuals who have been resident in the UK for 10 tax years will become subject to IHT on their worldwide estate. There will also be a 10 year ‘tail’ which means individuals will continue to be subject to UK IHT on their worldwide estate for 10 years after they become non-UK resident.

The use of excluded property trusts to shelter non-UK assets from UK IHT will also come to an end. Again, further details are expected at the Autumn Budget on 30 October 2024.

Would you like to know more?

There is certainly much to consider given the abolition of the non-domicile regime. Whilst there are still some confirmations that will not be provided until 30 October; the recent Labour policy document has provided some degree of certainty to allow planning to be considered.

The initial course of action should be for affected individuals to consider their non-tax objectives and future plans. This should inform the planning steps that could be taken.

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or alternatively Malli Kini using the form below.