The end of the current 'non-dom' tax regime – what has been proposed? - Boodle Hatfield

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11 Apr 2024

The end of the current ‘non-dom’ tax regime – what has been proposed?

Plans were announced at the Spring 2024 Budget on 6 March 2024 to abolish the current 'non-dom' tax regime and move to a residence-based system from 6 April 2025. These changes are very wide reaching and will present opportunities for some and create challenges for others.

We have summarised below what we know so far, but there is limited detail at present and the changes to inheritance tax remain subject to a consultation.  There may also be a change of government before the legislation is final, so the details – and timescale – may shift.  It is important to get bespoke advice from your advisor on the potential impact on your specific circumstances as soon as possible.

What is proposed?

From 6 April 2025:

  • ‘Domicile’ will be abandoned as a connecting factor for UK tax purposes.
  • The ‘remittance basis’ will be abolished and replaced with a new favourable regime for an individual’s first 4 years of UK residence.
  • Inheritance tax will no longer be based on domicile, but instead on how long an individual has been resident in the UK (see below).

Foreign income and gains:

  • New arrivals to the UK who have not been UK resident in any of the previous 10 UK tax years will be exempt from UK tax on their foreign income and gains (FIGs) for their first 4 years of UK residence. After the 4-year period, FIGs will be taxed as they arise, even if kept abroad.
  • Existing UK tax residents who have been tax resident for fewer than 4 tax years and are eligible for the scheme will be able to benefit from the relief until the end of their 4th year of tax residence.
  • Overseas workday relief will continue for the first 3 years of UK residence, relieving foreign employment income from UK income tax even if remitted to the UK.
  • Current income tax and capital gains tax (CGT) trust protections for offshore trusts will be removed, with trust income and gains assessed on the settlor as they arise, if (a) the settlor is UK resident and (b) the settlor retains an interest in the trust.

Transitional provisions for existing residents:

  • Former remittance basis users (RBUs) will:
    • be able to remit FIGs that arose before 6 April 2025 to the UK at a special rate of 12% under a new “Temporary Repatriation Facility” in the 2025/26 and 2026/27 tax years; and
    • on the disposal of assets held personally since 5 April 2019, be subject to the increase in value since 5 April 2019 only.
  • In addition, former RBUs who have already been resident in the UK for 4 years and are therefore not eligible for the new FIG regime will only be subject to income tax on 50% of their non-UK income in the 2025/26 tax year.

Inheritance tax:

  • Domicile will no longer be relevant to how an individual is subject to UK inheritance tax (IHT). Instead, an individual will be subject to IHT on their non-UK assets once they have been UK resident for 10 years.  On ceasing UK residence, there will be a 10-year IHT “tail”, such that their non-UK assets will remain within the scope of IHT for a further 10 years.
  • Excluded property trusts (EPTs) made before April 2025 will continue to benefit indefinitely from IHT protection. Where non-UK property is settled on to trust after April 2025, the IHT treatment will depend on the settlor’s residence status (a) at the time the assets are settled “and/or” (b) at the time of a tax charge.
  • These changes are subject to consultation.

This note is intended to provide a first point of reference for current developments in aspects of the law. It should not be relied on as a substitute for professional advice. If you have any questions, please get in touch with the key contacts listed (left).