Non-dom regime – time to act now

Published by Tom Boniface on 16 April 2024

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Following on from the update in March after the Spring Budget there has been a further announcement this month from the Labour party which clarifies its plans for non-doms if they win the next general election.

Here is what we know and why it might be necessary to review and act now in anticipation of a change of government.

The new rules announced in the Spring Budget will be introduced with effect from 6 April 2025 and if there is a Conservative Government after the next election, we can expect them to remain as:

Abolition of the Remittance Basis Regime

The current remittance basis regime will be abolished and replaced by the new Foreign Income & Gains (FIG) regime. This will apply to individuals in their first 4 years of UK tax residency, which the Statutory Residence Test (SRT) continues to govern.

It will be important for individuals to have a sound understanding of the SRT and its application to their circumstances. In some instances, taxpayers could be considered to be non-UK tax residents by adjusting the amount of time spent in the UK.

Given the FIG regime offers maximum tax benefits for a short period, not utilising the regime correctly could be costly.

For the 4-year period individuals will be able to use income and gains realised in that time in the UK without any tax charges. For qualifying inbound taxpayers this will be a good opportunity to realise offshore income and gains tax-free, however for current UK tax residents using the remittance basis it will mean a drastic change in their UK tax affairs.

Consultation of the Inheritance Tax (IHT) regime

As it stands, IHT is a taxation that is based on the principles of domicile. A non-UK domiciled individual’s non-UK situs assets are outside the scope of UK IHT. The current proposal, which is subject to consultation, is to change this to a residence-based system, meaning that an individual who has been resident in the UK for 10 years will be subject to UK IHT on their worldwide assets, again from 6 April 2025.

Changes in trust taxation

From 6 April 2025, the protection from tax on income and gains arising within a trust where the settlor is also a beneficiary will not be available for individuals outside of the 4-year FIG regime.

However, it is envisaged that the IHT protections for assets within a non-UK settlement, that was settled prior to 6 April 2025 will continue to apply. As such taxpayers may no longer benefit from income tax and capital gains tax benefits, but they could still benefit from IHT protections.

A Labour Government

Much of this also depends on the timing of the next general election and if the Conservative Government has time to turn the budget announcements into law and time for a Labour government to change it before the April 2025 deadline.

The Labour party has announced it will remove the proposed 50% tax deduction on foreign income in 2025 -26. It has also confirmed that offshore trusts will be subject to UK IHT (unless they have been set up before April 2025).

There are clearly going to be a lot of variables in relation to this area and individual circumstances and future plans and best advice is if you have been domiciled or resident in the UK, check if you will now be liable for UK IHT in the future?

Clearly there is a clock counting down to April 2025 so regardless of who forms the next government, it is a sensible time to review your tax position now.

If you would like more information, please don’t hesitate to get in touch with our team.

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