Update on the abolition of the non-domiciled regime

Back in March 2024, the Conservative Government announced sweeping changes and the removal of the current tax treatment for non-domiciled individuals in the UK.  Following the Labour Government Budget in the Autumn of 2024 and subsequent legislation issued earlier this year, further detail has been confirmed.

New Arrivals:

From 6 April 2025, a new 4-year Foreign Income and Gains (FIG) regime will be introduced.  As previously advised, this will apply to individuals who become UK tax residents after a period of 10 years of non-UK residence.

Qualifying individuals will not pay any UK tax on FIG arising in the first 4 years after becoming UK tax residents and will be able to remit these funds tax-free.

This means that a UK-domiciled individual who previously could not access any of the current remittance basis exemptions will now be able to apply for the FIG regime if they have been non-resident for 10 years or more when they return.

Claims will be made on Tax Returns and so individuals will be required to quantify the amount of income and gains being identified.  You will, however, lose access to both the UK personal allowance and annual exempt allowance for Capital Gains Tax in the years during which FIG is claimed.

For current, non-domiciled individuals, who have only recently arrived in the UK, access to FIG will be available but only for the first 4 years following the date of original arrival.  Therefore, if you arrived on 6 April 2024, you will only have access to 3 years of FIG from 6 April 2025.

However, where you have claimed the remittance basis of taxation during one of your years of residence in the UK, it will be possible to apply for the Temporary Repatriation Facility (TRF) which will allow, pre-April 2025, FIG to be ‘designated’ and taxed at 12% in 2025/26 and 2026/27 or 15% in 2027/28.  These ‘designated’ amounts do not need to be remitted in these years but can be remitted in future years for no additional tax charge.

Other Points to Note:

Overseas Workday Relief will continue to be available in the first 4 years of FIG for new arrivers.  Again, the election must be made on the Tax Return.

It is important to note that the remittance basis and the remittance basis charge will cease on 5 April 2025, so the current year is the last year on which this will be applicable.

Inheritance Tax:

Where an individual has been a UK resident for 10 out of 20 years, then they will be deemed to be Long Term Residents (LTR) and so liable to IHT on worldwide assets.

For individuals departing the UK, there is a tail that ensures that Inheritance Tax continues to be chargeable on worldwide assets in the UK for a number of years after departure.  For example, where you have been a UK resident for 13 years, you will remain caught for a minimum of 3 years before you can exit the UK IHT regime.

Capital Gains Tax:

For Capital Gains Tax purposes, there is an opportunity for individuals who have been:

• remittance basis users in the UK for the tax years 2017/18 to 2024/25; and
• not domiciled in the UK before 2025/26,
• with assets held at 5 April 2017; and
• sold after 6 April 2025 that are offshore

To elect to have their base cost uplifted to a value at 5 April 2017.

This option is available even if the individual has subsequently become deemed domicile after 2025/26 but was covered by the above rules.

Summary:

With all the above changes, it is important that a review of your situation is undertaken prior to 5 April 2025 to ensure that, should you wish as a non-domiciled individual in the UK to remit funds in the current year, consideration is made as to whether it will be prudent to wait until after the end of the tax year and potentially access the TRF or FIG options.

Our tax team here will be happy to discuss these matters with you.