• Date

    12 Mar 2024
  • Category


Changes to the taxation of non-domiciled individuals

It was announced in the UK’s Spring Budget in March 2024 that there would be changes to the taxation of non-domiciled individuals (often regarded as non-doms). The amendments effectively bring to an end the non-dom tax regime from April 2025, replacing it with a “modern, simpler and fairer residency system”.


Remittance Basis / Taxation of overseas income for Non-Domiciled Individuals


What were the rules?

UK resident individuals whose domicile is outside the UK (normally but not exclusively those born outside the UK) could previously elect to be taxed on the remittance basis, whereby they would only pay UK tax on income and gains that arose in or were remitted to the UK. 


What are the new rules?

From 6 April 2025, the current remittance basis of taxation will be replaced by the new Foreign Income & Gains (FIG) regime for individuals who become UK resident and have previously been a UK non-resident for at least 10 years. Qualifying individuals will not have to pay UK tax on any income or gains arising overseas for the first 4 years after becoming UK tax resident. Furthermore, they will also be able to bring those funds into the UK without incurring a tax charge here.  

Individuals who are already in the UK on 6 April 2025, but have been resident in the UK for less than 4 years will be able to use this new regime for any tax year of UK residence in the remainder of those 4 years. Again, this is subject to the caveat that they must have been non-resident for at least 10 years prior to their arrival in the UK.

Transitional arrangements will apply for individuals who move from the remittance basis to the arising basis of taxation on 6 April 2025 but who are not eligible for the new FIG regime (for example, if they have 6 years of non-residence in the UK prior to their most recent arrival). For 2025-26 these individuals will only pay UK tax on 50% of their foreign income. This relaxation is for one year only, and they will be taxed in full on their foreign income from 2026-27 onwards. 

The above reduction applies to foreign income only and does not cover foreign chargeable gains. From 6 April 2025, any individual who is not eligible or ceases to be eligible for the new FIG regime will pay UK capital gains tax in the normal way. However, they will be able to rebase any assets held personally at 5 April 2019 to the value at that earlier date.

From 6 April 2025, individuals who were previously taxed under the remittance basis and excluded foreign income and gains from UK taxation will be able to bring those funds into the UK under a new Temporary Repatriation Facility (TRF). This will be available for 2025-26 and 2026-27 only and will allow individuals to elect to pay UK tax at a reduced rate of 12% on any funds they now wish to remit to the UK.  


Overseas Workdays Relief (OWR)


What were the rules?

Previously, OWR was only available for UK residents but non-UK domiciled individuals claiming the remittance basis. Very simply, the income an individual earned whilst working overseas had to be paid and retained overseas but there were incredibly stringent bank account structuring rules required as a condition to benefit from the relief.


What are the new rules?

As the Chancellor announced the scrapping of the domicile regime, OWR will now be available to any individual who qualifies for the new FIG regime from April 2025, with the detail indicating that even UK nationals who have been living overseas and non-tax resident for 10 years can return to the UK and claim OWR.

Similarly, the strict bank account structuring rules will be abolished such that all employment income can be paid and retained in the UK and still be eligible for the OWR exemption. Therefore, eligible individuals will simply complete a UK tax return and exempt the portion of their income that relates to their overseas workdays. There is also an added bonus for employees, as previously PAYE was deemed an ‘automatic remittance’ so, if an individual spent 50% of their time overseas, the maximum they could exempt was 50% of their net pay. With the changes on allowing funds to be remitted to the UK, this may now mean that employees can exempt the relevant amount by reference to their gross income.

It is proposed that OWR will continue to be available for 3 tax years. For individuals currently claiming OWR (e.g., an individual that arrived in the UK during the 2023/24 tax year), it currently appears that they will need to comply with the current remittance basis rules to claim OWR. However, from 2025/26, this rule will then fall away and they can make a claim under the new regime. More detail will follow on this when the draft legislation is published later in the year.


Employer considerations of the new FIG regime

The main discussion points since the announcement has been regarding the impact on employees. However, we have detailed some questions and points below for employers to consider in respect of overseas employees considering coming to work in the UK. Exploring these will allow employers to understand their initial position but it is recommended that a specialist advisor is engaged before taking action.

  • Eligible employees may seek to take advantage of the OWR simplification by working more regularly overseas, particularly now remote working is so much more prevalent. This could inadvertently create social security obligations for companies in other locations – will employers consider restricting business travel to only necessary trips?
  • How will employers differentiate between necessary business travel and employee requested business travel?
  • Will this create a need to increase the monitoring of employee business travel?
  • Travelling overseas brings with it the cost of flights, accommodation, subsistence etc. If not necessary travel, will employers need to consider restricting what they offer to pay for in terms of these costs for employees?
  • How will the potential increase in business travel impact an organisation’s ESG agenda?
  • Could an increase in travel overseas in the first 3 years inadvertently create the risk of a Permanent Establishment of the UK Company in an overseas location?
  • Employees may request UK tax support in year 5 to help them claim the relevant foreign tax credits under the relevant Double Tax Treaty for overseas taxes due on non-UK sourced income and gains.
  • Similarly, employees may require host country tax support to ensure that the correct overseas taxes are available for credit in the UK.
  • This could create cash flow impacts due to different tax return filing and payment deadlines – will employees be willing to provide any support where a large liability becomes due before a refund can be facilitated in the other location?
  • Will international assignment or expenses policies need to be reviewed to reflect any changes that may be required?
  • Repeat assignments – currently a non-domiciled individual can leave the UK for 3 years but return and claim OWR – will the increase to 10 years impact the attractiveness of the UK and will employers need to consider increased renumeration packages to compensate for the loss of OWR?


We are here to help

We can help employers and non-domiciled individuals navigate the tax requirements and any challenges faced. If you have any questions or require assistance, please get in touch with a member of our specialist Employment Tax team or your usual Azets advisor.

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James Wheeler

Partner - Global Mobility Birmingham
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