Upcoming Changes to the UK Non-Domicile Tax Regime

This is an update to the original blog article of 1 May 2024 on changes to the UK Non-Domicile Tax Regime with the Government confirming it will end the domicile concept and remittance regime of taxation.

The government released a policy paper on 29 July 2024 about the changes to the taxation of non-UK domiciled individuals. So, what has changed since the previous blog?

Paul Webb, Director at Westcotts, outlines the key points of change in this new policy paper.

The confirmed actions from Government

• The new Government has confirmed it will end the domicile concept and remittance regime of taxation from 6 April 2025.
• The four-year foreign incomes and gains regime will commence on 6 April 2025. Foreign income and gains (FIGs) will not be taxed in the first four years of tax residence for qualifying individuals.
• The previous Conservative Government proposal to allow for a transition to the new regime by only taxing previous remittance basis users on 50% of their foreign income during 2025/26 will no longer proceed.
• Tax protection for FIGs in settlor interested trust will cease from 6 April 2025. This is unless it’s covered within the first four-year FIGs regime.
• The residence based regime for inheritance tax will come in from 6 April 2025. It is expected that the basic test about whether non-UK assets are within the IHT regime will be based on whether a person has been resident in the UK for 10 years prior to the tax year in which any chargeable event (including death) occurs.
• The use of Excluded Property Trusts to keep assets outside of the scope to IHT will end. However, uncertainty remains for existing Excluded Property Trusts as below.

Uncertainties remain

• Individuals coming to work temporarily in the UK will benefit from some sort of relief for overseas workdays performed. The details are yet to be confirmed.
• There was to have been an option to rebase certain overseas assets to its value as of 6 April 2019. This has now been changed. Whilst past remittance basis users will be able to rebase their overseas assets, the date of the rebasing is being considered.
• The Temporary Repatriation Facility (TRF) will be available for those previously taxed on a remittance basis. This will allow unremitted FIGs to enter the UK at a lower tax rate than has previously been the case. What time period there will be and what reduced rate will apply is to be determined. The previously announced rates and time periods can be ignored. There is recognition that this needs to be attractive.
• Ways are being explored to extend the TRF scope to include stockpiled income and gains within overseas structures.
• The government recognises that ending the ability to use Excluded Property Trusts to protect assets from IHT will impact upon trusts already established and structured to reflect current rules. It is considering how such changes can be introduced, whilst allowing for appropriate adjustments of existing trust arrangements.

What next?

The detail around the uncertainties is expected to be clarified in the next Budget – on the 30 October 2024. During the summer months, officials will be engaging with various stakeholders on issues arising in these areas and upon draft guidance.

For those affected by the changes to the domicile regime, until the next Budget, it still seems as though a wait and see approach is the best option.

If you have any questions or concerns about how these impending tax changes might impact your personal or business financial planning, contact Paul Webb by email at paul.webb@westcotts.uk or call 01392 288555.