All Change For Non-doms

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Lubbock Fine

Contributor

Lubbock Fine
Although there had been speculation in the run up to the Spring Budget that the Chancellor was set to steal Labour's proposals to 'abolish non-dom status', the actual announcements from Jeremy Hunt...
UK Tax
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Although there had been speculation in the run up to the Spring Budget that the Chancellor was set to steal Labour's proposals to 'abolish non-dom status', the actual announcements from Jeremy Hunt went beyond the anticipated changes for non-domiciled individuals.

The current position

As a reminder, a non-domiciled individual is a person who is considered to have their 'permanent home' overseas (usually in the country of their or their father's birth) which hasn't been displaced by an intention to reside indefinitely or permanently in the UK. Domicile is determined in accordance with common law and is subject to interpretation, which can raise uncertainties.

Since 2017, this has been supplemented with a 'deemed domiciled' status applying for all tax purposes after 15 years of UK tax residence in a 20-year period. Importantly, non-doms are currently able to create 'protected settlements' before they become deemed domiciled. This means that they can extend many of the tax advantages for as long as they maintain their non-UK domicile in common law. In particular, certain trusts retain an exemption from IHT as 'excluded property trusts' to the extent that they hold non-UK assets.

Changes from 6 April 2025

It's proposed that the taxation of individuals domiciled outside the UK for tax purposes ('non-doms') will radically change from April 2025:

  • The 15-year remittance basis will be replaced by a 4-year exemption on 'Foreign Income and Gains' (FIG) for new arrivers (who have not been UK resident in the previous 10 years)
  • Taxpayers claiming the new FIG treatment will lose their entitlement to personal allowances and CGT annual exemptions, as remittance basis taxpayers do now.
  • They will be free to bring these funds into the UK as they wish without tax charge.
  • Existing 'trust protections' will similarly cease for all but those able to elect in to the new 'FIG regime'. Income and gains in offshore trusts and other structures may therefore be attributed to a relevant UK resident individual.

The transitional measures resulting from the changes will allow for:

  1. A 50% exemption on foreign income (but not gains) for 2025/26. This applies to those who lose their preferential tax status on 06/04/25.
  2. The option to elect to rebase relevant overseas assets to their value as at 5 April 2019 on a future disposal. This rebasing will be subject to conditions that will be announced at a later date.
  3. A 12% reduced rate of tax on the remittance of pre-2025 FIG until 5 April 2027 under a new Temporary Repatriation Facility. This may be attractive for many in order to remove the need to segregate funds overseas going forward.

The government proposes to consult on a new, residence-based, regime for Inheritance Tax to apply from April 2025. This seems likely to include a 10-year residence period, bringing all worldwide assets into the scope of IHT with a further 10 year 'tail' after ceasing UK residence.

Excluded property trusts will retain their IHT beneficial status where they're established by non-doms before 6 April 2025. New arrivers may be able to create such trusts within their first 10 years in the UK, although this will need to be clarified.

Our initial assessment

While the reliance on residence as determined by the statutory residence test (SRT) rather than the uncertain concept of domicile is a welcome simplification, there seems no doubt that these changes will reduce the attractiveness of the UK as a base for internationally mobile wealthy families.

Similarly, the removal of the remittance basis will both simplify the management of offshore funds and may encourage more of these funds to be invested or spent in the UK - at least to the extent that there's no mass flight of non-doms to settle in more attractive jurisdictions going forward.

Planning for the changes

Clearly, the proposed 6 April 2025 implementation date allows some time to consider the full details once they are published (with further details expected in the coming months) and plan accordingly, so we would caution against rushing to quick judgements.

We'll review the full details as they emerge and would be happy to discuss in more detail how they might apply to your specific situation.

The areas that non-doms may wish to consider could include:

  • Restructuring existing protected trusts, including by
    • Changing the beneficiaries or terms
    • Changing the investment policy or the underlying holding structures of investments
    • Appointing family trustees in the UK to save administration costs
    • Winding the trust up entirely before, or after, April 2025.
  • Reviewing personal investments and potential structures, such as investment companies or bond wrappers
  • Planning to maximise the utilisation of the transitional provisions.
  • Considering future ties to the UK and alternative jurisdictions.

Originally published 7 March 2024.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.



All Change For Non-doms

UK Tax

Contributor

Lubbock Fine
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