Today, the Chancellor announced that, from 6 April 2025, the non-domiciled tax regime will be abolished.
These rules currently allow a non-UK domiciled individual (which is broadly someone who was born elsewhere) to reside in the UK without paying Income Tax and Capital Gains Tax on their foreign income and gains for a certain period of time, with an annual charge payable in certain circumstances, before becoming fully taxable on that income the longer they reside here.
The rules are complex, so a simpler, fairer system is welcome.
The new rules seek to tax a “non-dom” individual on their worldwide income and gains after a period of four years – a much shorter period than the current rules, with the abolition of the “remittance basis charge”, which allows an annual payment to be made to HMRC to retain the tax-free status of the foreign income and gains.
This system should be much simpler, bringing non-doms in line with other UK resident taxpayers quicker. There will be transitional rules before then for those currently taxed under the regime.
The transitional arrangements include:
- A temporary 50% reduction in personal foreign income subject to tax in the tax year ending 5 April 2026 for non-doms who will lose access to the remittance basis and are not eligible for the new four-year exemption.
- Re-basing of capital assets to 5 April 2019 so that only gains on the growth of assets since that date are taxed when they are eventually sold.
- Non-doms that have previously benefited from the remittance basis will be able to benefit from a special Temporary Repatriation Facility for the tax years ending 5 April 2026 and 2027, so that they can remit foreign income and gains, arising before 6 April 2025, at a flat rate of 12%.
In addition, non-doms are subject to different Inheritance Tax (IHT) rules, whereby only their UK situs assets are subject to IHT. The Government has also announced that it is going to change the rules to be based on tax residence (i.e., where you’re living) as opposed to where you were born (i.e., the concept of domicile).
These new rules set out the UK’s position. However, taxes may still be payable in the country where the income or gain arises, and so double tax treaties will need to be considered to establish which country has primary taxing rights. Dual-country communications will be key to ensuring the right amount of tax is payable and reported in the correct jurisdiction.
It’s fair to say that this area will undoubtedly need closer attention, and specialist advice should be sought. We have a large non-resident and non-domicile tax team at BHP, so please do contact us if you need assistance.
To find out more or discuss your individual tax needs, please contact a member of the Tax team on 0333 123 7171.
