Update 30 October 2024 – Following the Budget announcement today, some of the details mentioned in this insight may have changed. Please visit our Budget page for further information.
The Chancellor of the Exchequer Jeremy Hunt in his March Budget announced the abolition of the non-dom tax regime. It will be replaced with a new residency-based system from 6 April 2025.
Update 30 October 2024 – Following the Budget announcement today, some of the details mentioned in this insight may have changed. Please visit our Budget page for further information.
Broadly, it will allow people who move to the UK not to pay tax on foreign income and gains for the first four years and then be taxed in the same way as every other UK citizen.
Currently, an individual who is registered with HMRC as non-domiciled in the UK continues to pay tax on their UK income but does not have to pay UK tax on income or capital gains earned overseas. Individuals are required to pay an annual fee of up to £60,000, called the remittance charge. The non-dom tax status does not allow them to bring their money into the UK, leaving them facing a potentially high tax bill if they do.
The non-dom regime is complex, with anyone wishing to claim the tax status having to demonstrate that their domicile – the country in which they were born, where they have a permanent home and where they might eventually plan to return – is outside the UK.
The scheme has been criticised because despite being tax resident in the UK a non-dom can avoid paying UK tax on their non-UK income and (because they are UK tax resident) they may not even pay tax in the country in which they are domiciled, thus potentially leaving their non-UK income totally untaxed. This contrasts with a UK tax resident, UK domiciled individual who must pay UK tax on their worldwide income. The Labour Party had promised to scrap the non-dom regime if elected at the next general election.
All change
Jeremy Hunt has said that the current remittance basis regime will be abolished and replaced with a new Foreign Income & Gains (FIG) regime. It will apply to individuals in their first four years of UK tax residency with the Statutory Residence Test (SRT) continuing to govern.
Individuals will be able to use income and gains realised in those first four years without any UK tax charged. However, it will mean a dramatic change to the tax affairs for current UK tax residents using the remittance basis.
Additionally, the Government has said it will launch a consultation on inheritance tax (IHT), changing it from a domicile-based tax to a residence-based system. This could see an individual resident in the UK for the past 10 years falling into the IHT net from as early as April 2025.
Changes are also being made to the taxation of trusts, removing protections from tax on income and gains outside of the four-year Foreign Income & Gains regime.
The tax affairs of international individuals and their families can be complex and will differ from one family to another. However, it is important that those claiming the remittance basis take advice as soon as possible to ensure they continue to pay the correct amount of tax.
If you’re not sure how the changes affect your business, please contact our expert below.
