RIP Non Doms

On 30 October 2024, the UK government published draft* legislation of the final form of its new tax regime abolishing non-domiciled tax status.

Overview

Steve Healy, Tax Partner at Hansen Sweeney, notes that the changes are perhaps less draconian than many were expecting and that there are opportunities for some to now bring monies into the UK in a more tax efficient manner (tax free in the UK or at a reduced rate).

Overall, this clearly impacts a significant population and there are distinct opportunities to minimise UK taxation, with careful planning. Steve encourages you to speak to your tax advisor for more detail.

Summary of key provisions
The new residence-based regime takes effect from 6 April 2025. Individuals who opt into the regime will not pay UK tax on foreign income and gains (FIG) for the first 4 years of tax residence. The regime will be available only to those who have not been UK tax resident for the 10 tax years immediately prior to their arrival. Those who do not qualify for the new regime or do not opt in will continue to pay tax on remittances of FIG that arose prior to 6 April 2025.

There will be no 50 per cent reduction for remittances of foreign income during the first tax year of the new regime (as was previously suggested).

Under certain conditions, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017.

Overseas workday relief will be retained extending to a four-year period and removing the need to keep the income offshore, up to limits.

The temporary repatriation facility (TRF) is being extended to three years and its scope expanded to distributions from offshore structures.

The mixed-fund rules will be simplified.

For tax years 2025/26 and 2026/27, amounts remitted subject to the TRF will be taxed at 12 per cent, rising to 15 per cent in tax year 2027/28.

The loss of protected status for non-UK trusts from 6 April 2025, although disappointing, sees some ‘sensible changes’ to the attribution rules.

There are some transitional provisions for assets held in trusts established before 30 October 2024. Foreign property held in such trusts created will be exempt from inheritance tax (IHT) on the death of the settlor. Previous announcements had not made this clear, leading to anxiety that significant numbers of non-doms would emigrate to avoid the charges before they were brought into effect. The criteria for non-doms’ estates to be fully liable to IHT on their worldwide assets after they leave the UK will also be slightly eased. Although non-UK situated assets will be liable if an individual has been resident in the UK for at least ten out of the previous 20 years immediately preceding death (this period will be reduced where they have been resident only for between 10 and 19 years).

Protections from UK tax on FIG arising within settlor-interested trust structures will no longer be available for non-dom and deemed-domiciled individuals who do not qualify for the new regime.

*Please note that the proposals remain in draft form at the date of publication and it is entirely possible that there could be material changes before the relevant laws are enacted.