The Chancellor announced in the Spring Budget that non-domiciled (non-dom) tax status will largely be abolished and replaced with a new scheme.

Existing regime

Under the existing rules, individuals who are non-dom can claim the remittance basis, an alternative tax treatment which means they only pay UK tax on the income or gains they “remit” to the UK. The remittance basis is available for the first fifteen years of residence. Foreign income and gains in non-UK trusts can also be “rolled-up” tax-free.

What are the proposed changes?

Under the proposed changes, from April 2025:

  • Individuals will not pay UK tax on any foreign income and gains arising in their first four years of tax residence (if non-UK resident for the prior 10 years).
  • After this four-year period, all personal non-UK income and gains will be subject to UK income and capital gains tax.
  • Settlors of non-UK trusts will also be taxed on all income and capital gains arising in the trust after four years of UK residence.

These changes are due to be implemented after the next general election, so it remains to be seen if they will be altered if there is a new government.

Are there transitional provisions?

  • There will be an option to rebase assets to 5 April 2019.
  • There will be a temporary halving of the income tax rate for 2025/26 for individuals who lose the remittance basis.
  • A two-year “Temporary Repatriation Facility” will be introduced to allow previously accrued foreign income and gains under the remittance basis into the UK at a flat rate of 12% for 2025/26 and 2026/27.

Will there be changes to Inheritance Tax?

There have been no concrete changes to Inheritance Tax (IHT) announced yet but the government is consulting on changes to:

  • reduce the current 15 year “non-dom” exemption from IHT to 10 years; and
  • extend the period for which individuals must leave the UK before becoming “non-dom”, again to 10 years (up from 5 years).

Trusts settled before 5 April 2025 should still protect assets from IHT even if the settlor continues to live in the UK after 10 years. Trusts settled after 5 April 2025 will not be protected if the settlor has been UK resident for ten years.

Can the non-dom status changes be avoided?

The devil will be in the detail of the new rules and we haven’t seen this yet. However, the new rules will not be imposed until 6 April 2025 so there is time for planning.

New arrivals will be able to earn foreign income and gains without any charge to UK income and capital gains tax for the first four years.

Trusts settled by non-doms which are not “settlor-interested” will still be effective to protect non-UK assets from IHT and against income tax, although protection from capital gains tax will be harder to achieve if spouses/descendants can benefit from the trust.

What do you need to do?

If you already live in the UK, take advice well before early 2025 in order to consider your options, including taking advantage of the reliefs and considering options to protect your assets from IHT and ongoing income/capital gains tax exposure.

If you are thinking about moving to the UK, take advice before your move to understand your potential exposure and to consider planning options.

If you have questions about how the abolition of non-dom tax status will affect you, please contact Alex Boothman.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.