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6 March 2024
Spring Budget: Taxation of Non-Domiciled UK Residents
The recent 2024 Spring Budget announced the ending of the current non dom regime from 6 April 2025 and will be replaced with a residence-based regime. This is the latest change to non doms following the reforms made in 2017.
The concept of non-domiciled individuals is those that have their permanent home or domicile outside of the UK. The current rules allow a non UK dom who is UK resident to opt in to the “remittance basis of taxation”. This means that whilst non UK domiciled individuals pay UK tax on UK income and gains in the same way as someone that is UK domiciled, they only pay UK tax on foreign source income and gains when that source of income or gains are remitted or bought into the UK.
What are the changes from the Spring Budget?
For those arriving to the UK, who have a period of 10 years of consecutive non UK residence, full UK tax relief will be available on foreign source income and gains during a four year period of UK residency. Any foreign income and gains during this period can be bought to the UK without tax charge. This also includes distributions from non UK resident trusts. In choosing to claim this tax treatment, the tax payer will lose their personal allowance and capital gains exemption.
The ability to make a claim under this 4 year regime will occur each tax year, so the tax benefits will need to be determined each tax year.
For those who are already a UK resident but have yet to be here for four years can also benefit from this relief until the end of their 4th year of residency.
After 4 years of UK residency, any foreign income and gains will be subject to UK taxation.
There will be a consultation on how to move the current inheritance tax (IHT) regime to a residence-based system. Currently IHT depends on domicile status and location of assets. No changes will be made before 6 April 2025 in relation to IHT.
How does this impact existing non doms resident in the UK?
This represents a significant change to the rules currently in place and so transition arrangements for existing non doms will apply as follows:
- For those that are not eligible for the 4-year exemption and lose access to the remittance basis of taxation with effect from 6 April 2025, will have a temporary 50% reduction in their personal foreign income subject to tax in 2025-2026. This reduction does not apply to foreign capital gains.
- It will be possible for current non doms claiming the remittance basis, when disposing of foreign assets and calculating the gain, to rebase the value of that asset to 6 April 2019, as opposed to using the original book cost, which could be significantly less. This will provide a potential capital gain benefit on disposal of any foreign assets after 6 April 2025. The gain will be calculated taking the difference between the disposal proceeds less the market value as at 6 April 2019.
- The ability to remit foreign income and gains arising before 6 April 2025 to the UK at a reduced tax rate of just 12%. This is a new temporary repatriation facility for the tax years 2025/26 and 2026/27. This will not apply to pre 6 April 2025 foreign income and gains arising within trust structures.
Overseas Workday Relief (OWR)
OWR works by providing income tax relief on earnings for those employment duties performed outside of the UK. This relief is available for non doms only.
Those that opt in to the 4 year regime can continue to access OWR but will only be available for the first three tax years of UK residence.
To read our full Spring Budget update, please click here.
If you wish to discuss how these changes impact you, please get in contact.