How Do The Non-Dom Reforms Affect Me?
The reforms of the non-dom tax system announced in the October 2024 Budget will come into effect from 6 April 2025. The move to a residence-based regime will have far-reaching consequences both for non-doms currently in the UK and those planning on moving here.
The non-dom reforms
Effective 6 April 2025, the current remittance basis of taxation will be abolished and replaced by a new system based on an individual’s residence status, rather than their domicile.
This change is subject to transitional provisions which, in some cases, will lessen the immediate impact of the abolition of the remittance basis. Notwithstanding, the overall effect will be to accelerate the point at which someone coming to the UK becomes liable to UK tax on their world-wide income and gains. There are similar proposals to extend the scope of Inheritance Tax to non-UK assets, including those held by non-UK trusts.
In summary, the main changes from 6 April 2025 are:
Individuals moving to the UK after a continuous period of non-residence of at least 10 years will be exempt from UK tax on foreign income and gains (FIG) for their first 4 years of UK residence.
Those not qualifying for the 4-year FIG regime will be taxed in full on their worldwide income and gains as they arise.
A new Temporary Repatriation Facility will be available to individuals previously taxed on the remittance basis whereby unremitted FIG that arose prior to 6 April 2025 can be brought to the UK at a reduced rate of tax – for 2025/26 and 2026/27 this is 12%, rising to 15% in 2027/28. Remittances of previously untaxed FIG after 5 April 2028 will be taxed at the full rates applicable at that time.
Inheritance Tax will be chargeable on worldwide assets where the individual has been UK resident in at least 10 of the 20 tax years preceding the year in which the chargeable event occurs.
The rules relating to non-UK trusts will be significantly altered both in relation to income and capital gains, together with Inheritance Tax – specialist advice is essential.
Given the limited time before these changes take effect and the complexities of the new rules, anyone who may be affected should be starting a conversation as to their options, particularly those who may be considering leaving the UK. Please get in touch if these issues are likely to affect you.