The Chancellor Jeremy Hunt in his Spring Budget has announced the abolition of the non-dom tax regime. It will be replaced with a new residency-based system from 6 April 2025. Nicholas Barlow explains.
The details are complex, but broadly people who move to the UK will not pay tax on foreign income and gains for the first four years and then taxed in the same way as every other UK citizen.
Current position
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 will be required to pay an annual fee of up to £60,000, called the remittance charge. The tax status does not allow them to bring their money into the UK or deposit it in a UK bank account, leaving them facing a potentially high tax bill if they do.
The non-dom regime is as you might expect 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.
But crucially, and perhaps where controversy arises, because an individual is considered tax resident in the UK, non-doms often do not pay tax in the country in which they are domiciled, potentially leaving their worldwide income untaxed.
What is changing
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 6 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. It appears however, that trusts will continue to play a role in IHT protections.
We recognise that the tax affairs of every individual will be different with these changes affecting individuals in different ways. 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.
Contact our Private Client Solicitors
If you have questions surrounding ownership of property or other assets overseas, or are in need of advice or assistance on any of the legal issues mentioned in this article, please contact Nicholas Barlow, Partner or any member of our experienced Private Client team on 020 7631 4141 or email privateclient@bishopandsewell.co.uk
The above is accurate as at 07 March 2024. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
