The UK Government has finally taken decisive action to eliminate the 200-year-old Non-Domicile and Remittance Basis Regine from 6 April 2025, following years of ongoing discussions!

This message is particularly relevant to our international/non-domiciled clients and aims to provide an overview of key changes affecting you.

We are currently working through the policy papers in detail and anticipate further guidance and legislation will be issued. We strongly advise planning your affairs carefully over the next 12-24 months to navigate these changes effectively. However, we must also bear in mind that an election is coming up, so the announcements made today may be changed by an incoming Labour Government!

Summary of Key Changes

1. Abolition of the Remittance Basis:
From 6 April 2025, the remittance basis of taxation for UK resident non-domiciled individuals will be abolished. This marks a significant shift in the tax treatment of foreign income and gains.

2. Introduction of the 4-Year FIG Regime:
A new 4-year Foreign Income and Gains (FIG) regime will be introduced from 6 April 2025 for individuals who become UK tax residents after a period of 10 tax years of non-UK residence. Under this regime, qualifying individuals will not pay tax on FIG arising in the first 4 tax years of UK residency and can remit these funds to the UK without additional charges.

3. Changes to Overseas Workday Relief (OWR):
OWR will be retained and simplified from 6 April 2025, with eligibility based on an employee’s residence status and their choice to use the new 4-year FIG regime.

4. Taxation of Trusts:
From 6 April 2025, the protection from tax on income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the new 4-year FIG regime.

Planning point: Existing trust structures need to be reviewed to assess the potential impact and any actions required in the short term. 

5. Transitional Tax Reduction:
For the tax year 2025-26, individuals transitioning from the remittance basis to the arising basis, who are not eligible for the new FIG regime, will pay tax on 50% of their foreign income. This will not apply to foreign gains. 

6. Capital Gains Tax Rebasing:
A rebasing option will be available for assets held personally on 5 April 2019, for individuals transitioning from the remittance basis and not eligible for the new FIG regime.

Planning point: This seems similar to the rebasing effect that was available in 2017. Regardless of the intention to sell or not, it may be worth obtaining a 5 April 2019 valuation.

7. Temporary Repatriation Facility (TRF):
A TRF will be introduced, allowing taxed remittances of pre-6 April 2025 FIG at a reduced rate of 12% for the tax years 2025-26 and 2026-27.

Planning point: This is effectively an amnesty to allow historically unremitted income and gains to be remitted/enjoyed into the UK at a very favourite rate.

The government has also indicated that Business Investment Relief (which allows remittances of foreign income and gains to be exempted from tax when invested in qualifying UK trading companies) will still be available under the new regime. 

8. Inheritance Tax Reform:
The government plans to move from a domicile to a residence-based Inheritance Tax (IHT) regime from 6 April 2025, subject to consultation.

Planning point: According to current guidance, it seems that the government has provided an opportunity for non-domiciled individuals to create an excluded property trust before 5 April 2025, which will not be subject to IHT even under the new residence-based rules.

We shall also be reviewing the impact these changes have with the Double Tax Treaties (for example with India, Pakistan, France, and Italy) during the consultation process this year. However, it is likely that post 6 April  2025 relying on the IHT double tax treaty may no longer be possible. 

Implications and Planning

These changes signal a substantial shift in the UK's approach to taxing non-domiciled individuals. It is crucial to review and possibly restructure your financial and tax affairs in anticipation of these changes at an early stage. Specifically, consider:

•    the impact of losing the remittance basis and planning for the use of the new 4-year FIG regime;
•    re-assessing investments and trust arrangements in light of the forthcoming changes to their taxation;
•    planning for the use of the 12% TRF for repatriating foreign income and gains;
•    re-evaluating your IHT planning given the latest news. 

Caveat: This is a complex area of taxation, and no action should be taken without professional advice.

Our team is here to assist you in navigating these changes and ensuring your affairs are structured as efficiently as possible.

Source: | 07-03-2024