A further 2% reduction in national insurance contributions (NIC) rates for employees and the self-employed over and above the reductions included in the 2023 Autumn Statement has been announced.

Summary

From 6 April 2024, the main rate of class 1 employee NIC will fall from 10% to 8%. This follows the recent reduction from 12% to 10% that took effect from 6 January 2024.

A further 2% reduction to the class 4 NIC main rate has been announced, bringing the rate down to 6% from 6 April 2024.

The rate of class 1 employee NIC and class 4 self-employed NIC paid by those with earnings or profits above the upper limit will remain at 2%. Employers' NIC has not been cut and remains chargeable at 13.8%.

Our comment

These cuts represent a relative saving for workers compared to those who receive income by other means. Middle earners will benefit most from this cut. In real terms, however, they only provide partial relief against the continuing freeze in income tax and personal allowance thresholds that is expected to remain until April 2028. The Chancellor has also decided not to cut the burden on employers, which is unsurprising given the continuing cost of living pressures faced by employees.

The Chancellor has announced that the UK’s non-domicile tax status and remittance basis rules are to be abolished and a new, simpler, residence-based foreign income and gains (FIG) regime introduced with effect from 6 April 2025. This will be on an opt-in basis and only apply for the first four years after becoming UK tax resident.

Summary

The announcement means that the remittance basis of taxation will no longer be available for non-UK domiciled individuals. Under this, foreign income and gains were not taxable provided that this income was not remitted to the UK. The remittance basis can currently be claimed for the first 7 years of tax residence without any tax charges.

The new FIG regime will apply on an opt-in basis, individuals will not pay UK tax on any foreign income and gains arising in their first four years after becoming UK tax resident, provided that they have not been UK tax resident for the last 10 years. The FIG regime will apply across all of the UK, and transitional arrangements will be introduced for existing non-domiciled individuals claiming the remittance basis.

Employers with expatriates working in the UK will want to be aware of the changes particularly if any employees are tax equalised as this will have a direct impact on the costs of these arrangements.

The Government has also announced a reform to overseas workday relief (OWR) under the FIG regime. OWR provides income tax relief for the employment income relating to any workdays carried out outside the UK. Currently, the relief is restricted to the amount of earnings not remitted to the UK, however, in future, the remittance restriction will be removed.

Our comment

Details at this stage remain light, and much remains to be seen about how the transitional arrangements and new regime will work in practice when the draft legislation is published later this year.

From a global mobility perspective, the announcements raise some wider considerations for employers:

• OWR will be retained under the FIG regime and available for the first three tax years of residence where the individual elects for the FIG regime. However, under the FIG regime, there will be no remittance limitation on the amount of OWR relief available. This will serve to reduce the cost of any inbound assignments to the UK.
• The FIG regime will only apply for the first four tax years of residence, which is not as favourable as the current rules. From a policy perspective, where you have employees on assignment in the UK for more than four years, what will be your policy in relation to taxation of personal income?
• Some individuals who currently are non-UK domiciled may not qualify for the FIG regime even if they are within their first four years of tax residence where they do not meet the 10-year non-residence test. This would result in increased assignment costs for tax equalised employees as OWR will not be available.
• Where you have employees on assignment in the UK who are non-UK domiciled and currently claiming the remittance basis, consideration will need to be given as to what level of support you will offer them in working through the transitional arrangements to be introduced as there are tax planning opportunities available.
• The Government is encouraging individuals to remit funds to the UK with a temporary repatriation facility. Where this includes income from assignment periods, employers need to understand the policy implications of individuals bringing these funds into the UK.