Spring Budget 2024: big changes announced for non-UK doms

The Chancellor has somewhat unexpectedly announced that the current remittance basis regime for non-UK domiciled individuals will be replaced with a residence-based regime from 6 April 2025.

Under current law, a non-UK domiciled individual (broadly someone originating from outside the UK, who does not intend to remain in the UK permanently), is able to elect to be taxed in the UK on the ‘remittance basis’, until they have been resident in the UK for 15 of the past 20 tax years. Under the remittance basis, an individual is subject to UK tax only on UK-source income and gains, and on any non-UK income and gains that are used in the UK. The Government plan to remove this regime and replace it with one based on tax residence.

The new regime will mean that individuals will not pay tax on foreign income and gains for the first four years after becoming UK tax resident. The regime is aimed at those coming to the UK either for the first time or after an absence of over 10 years, rather than being based on domicile status. Taxpayers who choose to use the regime will not be entitled to an income tax personal allowance or capital gains tax annual exemption for the relevant tax year.

Transitional arrangements will be made available to existing non-UK domiciled individuals after 6 April 2025, These will include:

- an option to rebase the value of capital assets to their value on 5 April 2019. This will be available for individuals who are currently non-UK domiciled and not deemed-UK domiciled under existing rules, who have claimed the remittance basis;
- a temporary 50% exemption on the taxation of foreign income in 2025/26, for individuals who will ‘lose’ access to the remittance basis on 6 April 2025; and
- a two-year ‘temporary repatriation facility’, which will allow individuals to remit existing pre-6 April 2025 foreign income and gains into the UK and pay a reduced 12% tax rate.

From 6 April 2025, the protection from tax on income and gains arising within settlor interested trusts will no longer be available and the foreign income and gains will be taxable on the settlor. The Government will also review provisions to prevent income tax avoidance by transferring income producing assets to a non-UK resident company. The existing rules will be revised to ensure that they remain effective and complement the new residence regime.

Overseas workday relief rules will also be revised. Under existing rules, inbound non-UK domiciled employees can benefit from an income tax exemption on income from non-UK duties for the first three years of UK residence, subject to that income not being remitted to the UK. The new rules will remove the requirement to keep the income offshore, meaning that the overseas element of the employment income can be brought to the UK without a tax charge.

A residence-based regime will also be introduced for inheritance tax. The Government plan to consult on this and has outlined plans for a 10-year exemption from inheritance tax on non-UK assets for new arrivals and a ‘tail-provision’ to keep a taxpayer within the scope of worldwide inheritance tax for ten years after leaving the UK. No changes to inheritance tax will take effect before 6 April 2025. The Government has advised that the current inheritance tax exemptions for non-UK property held in trusts will continue for trusts already in existence, and for trusts settled by a non-UK domiciled settlor before 6 April 2025.

While the Labour party had already announced plans to repeal the non-UK domicile tax regime if they form a Government after the next general election and rumours were circulating in the press in the days leading up to the Budget, it was quite unexpected that the existing Government would take such significant action now.

The new rules have been framed to attract foreign investment by those newly arriving in the UK. Such individuals will not be taxed on funds that they bring to the UK, whereas existing rules charge tax on remittances of foreign income and gains that arise after an individual becomes UK resident. Longer term UK residents stand to lose out, however, particularly if they anticipated using the remittance basis beyond 5 April 2025 or if they benefit from the existing beneficial regime for offshore trusts.

Individuals becoming taxed on a worldwide basis may need to give greater consideration to international tax treaties.

There is now a window of just over one year, during which time affected taxpayers should take the opportunity to review their tax affairs and plan for how the new tax regime will affect them in the future.

Please do get in touch with your usual Evelyn Partners team or one of the contacts listed if you would like to discuss these changes in more detail.