Whilst HMRC have published a technical note, the draft legislation has not yet been made available. We will keep this article updated as more detail is released.
What is a Non-Dom?
Non UK Domiciled individuals or ‘non-doms’ are people who are tax resident in the UK, but who claim that the centre of their personal and financial interests are outside of the UK. Domicile is an important concept which can impact how individuals are subject to income tax, capital gains tax (CGT) and inheritance tax (IHT) in the UK
Every individual has a domicile. Unlike residence, it is not possible to be domiciled in two countries or to not have a domicile. An individual’s domicile is usually either ‘Domicile of origin’ – taken from your father’s domicile at birth or ‘Domicile of choice’ - if you are over 16 and choose to leave your domicile of origin and live indefinitely in another country, you can acquire a new domicile of choice in that new country.
While your domicile is determined under common law, there are provisions in tax law that can deem you to be UK domiciled, if you meet certain conditions.
Why does this matter?
Individuals with their personal and financial interests outside of the UK, will potentially have income and capital gains from non-UK sources. While UK domiciled and tax resident individuals are taxable on their worldwide income and gains, Non-Doms are able to elect for a separate basis of taxation known as the ‘Remittance Basis.’ This prevents UK tax being charged on non-UK sources of income and gains. To learn more about the current Non-Dom rules, please visit our Guide to non-domicile tax status
Whats changing?
From 6 April 2025, there will be a new residence-based ‘Foreign Income and Gains’ (FIG) tax regime. Under this new system it seems individuals will not pay UK tax on any foreign income and gains arising in their first four years of tax residence. To qualify for this treatment, the guidance currently suggests individuals must have been non-tax resident in the UK for the last 10 years.
Just like the current remittance basis, individuals choosing to be taxed under the new FIG regime will lose entitlement to the personal allowance and the CGT annual exempt amount. However, the changes could mean that there will no longer be a tax charge to bring any “Foreign Income and Gains’ arising in this period into the UK.
Existing tax residents, who have been tax resident for fewer than 4 tax years may be eligible for the scheme and could also benefit from the relief until the end of their 4th year of tax residence. It is possible given the basic qualifying conditions are changing, many new individuals who would not have qualified as non-doms, may now be able to take advantage of these new tax rules.
For those already benefiting from the remittance basis of taxation, the following transitional provisions have been proposed:
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Individuals who move from the remittance basis to the arising basis on 6 April 2025 and are not eligible for the new 4-year FIG regime will, for 2025-2026 only, pay tax on 50% of their foreign income. However, this does not apply to foreign chargeable gains.
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Individuals who have claimed the remittance basis will, on a disposal of an asset held personally on 5 April 2019, be able to elect to rebase that asset to its value as at that date.
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Finally, the government will also offer a two-year temporary repatriation facility for individuals who have paid tax on the remittance basis prior to 6 April 2025 to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.
The new repatriation facility is
expected to bring in an additional £15bn of foreign income and gains onshore to
the UK and raise over £1bn in additional tax receipts. When comparing the
temporary 12% tax rate with what in many cases could be a 45% charge, this
could lead to some opportunities.
Overseas workday relief, to which non-doms on the remittance basis are currently entitled during their first three years of UK tax residence, will be retained and simplified.
Many other detailed technical changes will be needed as a result of moving to a residence-based tax system, says the Treasury. These will be covered in further updates and draft legislation that will be published later in 2024.
How can Lovewell Blake help?
In an ever changing world, it is important to stay up to date with new rules and legislation to ensure you a maximising your tax efficiently and staying compliant with UK tax law. This is why Lovewell Blake provides a complete package of accounting services for international clients.
We have a vast amount of experience advising clients on international tax matters, including those with non-dom tax status. Our advice includes reporting obligations in this country together with tax planning opportunities in line with current legislation.
If you would like to speak to one of our specialists
Related news
Removal of the remittance basis from April 2025 (often confused with ‘non-dom’ tax status)
I’ll start by putting a myth to bed – the term ‘non-dom’ remains because the concept originates from a taxpayers (and their parents) place of birth. Whilst a Chancellor has many powers he can’t change the origin of somebody’s birth!