Our final article on the 2024 Spring Budget updates explains the upcoming changes for those who are ‘non-domicile’ in the UK for tax purposes.
First up, what does non-domicile mean?
Your domicile is typically the country considered your permanent home. In the UK, you can be resident without being domiciled. Non-domicile status therefore applies to people who have moved to the UK but still consider another country their true home.
So, what does non-dom mean for your taxes?
Well, the UK operates a tax system based on residency and domicile status. If you’re a UK resident but not domiciled in the UK, you may have been eligible for some tax advantages, mainly to do with foreign income and assets.
Before the March budget announcement, non-domicile status had a key benefit. The ability to use the “remittance basis” for taxes.
Under this basis, the UK only taxed you on income and gains that you brought (“remittance”) into the country. This would be advantageous if you have substantial income or assets abroad that you don’t need to bring into the UK.
However, there are significant tax rule changes coming for UK-resident non-domiciled individuals. In fact, we expect the concept of ‘domicile’ to disappear completely by the end of the next parliament.
Here’s a simplified breakdown of the non-dom tax changes:
The 4-Year FIG Regime Overview
Starting 6th April 2025, the government will introduce a fresh approach to personal Foreign Income and Gains (FIG).
When eligible individuals become UK tax residents after 10 years of non-UK tax residence, they won’t pay tax on FIG for the first 4 tax years, provided they make a claim.
This simplifies tracking FIG movements through investments compared to the current regime and should make tax management easier. If you’ve been resident for less than four years on 6 April 2025 you can still utilise the FIG regime for the remainder of their four-year period.
Additionally, transitional rules will allow individuals to rebase foreign assets to their value as of 5 April 2019 when disposing of such assets.
Temporary Repatriation Facility (TRF)
A temporary tax reduction opportunity will be available for qualifying individuals, with a 12% tax rate being imposed on FIG remittances during the tax years 2025-26 and 2026-27.
Overseas Workday Relief (OWR)
Employees opting for the new FIG regime can still benefit from Overseas Workday Relief (OWR) for the first 3 tax years of UK residence.
OWR provides relief on earnings for employment duties performed outside the UK, offering tax breaks even if earnings aren’t brought to the UK.
Trust Protections and Inheritance Tax Changes
Tax treatment for income and gains in settlor-interested trusts is set to be altered.
From 6th April 2025, FIG arising in trusts will be taxed on the settlor, akin to UK-domiciled settlors. Transitional rules will apply, ensuring a smooth transition for affected individuals.
Are these non-dom uk tax changes definitely happening?
These changes are still being considered and the government is holding consultations on various aspects of the new tax regime, including transitional provisions and calculating trust charges.
We will keep you updated if any of the rules announced are amended in any way!
Looking for advice on non-dom uk tax?
The changes represent a notable transformation in the tax environment for non-domiciled individuals in the UK.
If you’re affected, it’s crucial for you to understand the changes and seek professional advice to ensure you comply with the new regulations.
If you have any queries, please feel free to reach out and email our Tax Team Lead Nicole: Nicole@blusky.co.uk.
FAQs about Non-Dom UK Tax Changes Announced in Spring Budget 2024
General
- What is changing for non-doms in the UK? The remittance basis for income and capital gains tax is being abolished for most individuals arriving after April 5th, 2025.
- What was the remittance basis? This allowed non-doms to avoid paying UK tax on foreign income and gains unless they brought (remitted) the money into the UK.
- When do these changes come into effect? These changes apply to income and gains arising after April 5th, 2025.
New Regime
- What is the new regime for non-doms? The new regime offers a temporary exemption (FIG Regime) for foreign income and gains for up to four years for new arrivals.
- Who qualifies for the new FIG Regime? Individuals who haven’t been UK tax resident for the previous ten years can claim the exemption for their first four tax years of residence.
- How does the FIG Regime work? By making an annual claim, qualifying individuals can avoid UK tax on foreign income and gains for up to four years.
Existing Non-Doms
- How will existing non-doms be affected? The remittance basis will be grandfathered for income and gains arising before April 5th, 2025. There are also transitional rules for capital gains tax.
- Is there a way for existing non-doms to bring foreign income into the UK without tax? Yes, there’s a temporary two-year opportunity (2025-26 & 2026-27) to bring foreign income in at a 12% tax rate.
Additional Considerations
- What if I’m unsure about my domicile status? Consulting a tax advisor is recommended to determine your domicile status and how these changes apply to you.
- Where can I find more information? The UK government website offers detailed information on the changes.
Disclaimer: Please consult a tax professional for your specific situation.
