The transition period between now and when changes to the non-dom system are due to kick in will be a critical one, the author of this article argues. Of course, with a UK general election due to take place by the end of 2024, uncertainties remain.

As readers can see, there is a great deal of focus on the UK government’s stated intention to replace the resident non-domicile system. It dates back to the late 18th century and has become a hot political potato. (See articles here and here.) Meanwhile, there is much to be worked out in terms of the fine detail. (As published separately, we carry another reaction to the proposals, and those of the opposition Labour Party.) 

In this short article, Jeremy Coker, partner at Oury Clark Chartered Accountants, walks through the features of the current landscape, and what is expected. The editorial team is pleased to share this article. The usual disclaimers apply. To respond, email tom.burroughes@wealthbriefing.com

This week marks exactly one year until the introduction of the new non-dom tax regime. The changes are wide-ranging and will affect both those currently living in the UK and those planning to move here. Non-UK domiciled individuals should start planning ahead for the changes in order to avoid any unpleasant surprises down the line. So let’s refresh how the rules are set to change, and what you can do to be prepared.

Right now, non-doms can pay tax in the UK on either the arising basis, or the remittance basis. The remittance basis is expected to be abolished from 6 April 2025. 

Foreign Income and Gains (FIG) 
A new Foreign Income and Gains (FIG) regime will be available to individuals who become UK tax resident following a period of 10 tax years of non-UK residence. They will be able to remit any FIGs arising in the first four years of UK residence without incurring a UK tax charge.

If they leave and come back within four years, they will still be able to take advantage of the regime until the end of the four years.  

UK tax resident individuals who arrived after 10 years of non-UK tax residence, but who have not yet been UK tax resident for four years on 6 April 2025, will be able to benefit from the new FIG regime until they have been UK resident for four years.

The FIG rules will also cover distributions from non-resident trusts in the same period. 
   
Transitional rules
Non-doms ineligible for the FIG regime will pay UK tax on 50 per cent of their income arising in the year ending 5 April 2026. 

The 50 per cent reduction will not apply to foreign gains arising that year.
 
Assets held on 5 April 2019, as long as the individual has claimed the remittance basis, they will be able to elect to rebase those assets to their value as at that date. 

Non doms, who have never claimed the remittance basis, but have assets that were standing at a gain as at 5 April 2019, may wish to consider whether they will be able to benefit from making such a claim in the year ending 5 April 2025. 

They will need to compare the benefits to be obtained from any potential rebasing to the costs of making a remittance basis claim.

Temporary Repatriation Facility TRF
Non-doms who have been taxed on the remittance basis and who have unremitted pre-6 April 2025 FIG, will have two years, from 6 April 2025 to 5 April 2027, to remit those funds to the UK and elect to be taxed at a reduced rate of 12 per cent. 

This TRF will not be available for trusts.

Relaxations to Overseas Workday Relief rules as well as the removal of protections to income and gains arising in trusts were also announced.

Changes to inheritance tax are to be consulted.

Planning ahead 
So, how can non-doms plan ahead for the changes? It is important to start preparing sooner, rather than later. The transitionary provisions provide some breathing space for non-doms to assess their options, and it would be wise in the meantime to stay informed of any updates regarding the proposals and seek professional advice if there is anything you are unsure of.
 
(Oury Clark: For more information on this, please feel free to join our online webinar, where we will explain the changes to non-dom rules and how they work on 22 April 2024.)