Non-dom UK tax changes from 6 April 2025: A personal tax view
As noted on our recent insight from James Wheeler, Global Mobility & Employment Tax Partner, the Spring Budget 2024 announced some sweeping changes to the UK’s tax regime for non-UK domiciled individuals (non-doms), which are expected to be implemented from 6 April 2025.
The publication of further details and draft legislation is awaited. In the meantime, it is clear that the changes will have a significant impact on the UK tax affairs of many non-UK non-doms and trusts settled by non-doms. With this in mind, there are a number of planning opportunities that should be considered in advance of 6 April 2025.
Here, we provide an overview of what we know so far from a personal tax perspective, as well as some of the actions individuals affected should consider ahead of the scheduled date of introduction.
The current position of the proposed legislation
It’s important to note that there are a number of factors that could mean that the changes do not pass into legislation in their current proposed form, including changes to be made as a result of the legislative process, the outcome of government consultation, and the outcome of the next general election. Crucially, the government is not intending to incorporate the changes in this year’s Finance Bill, so it is likely to be some time before we have any certainty on the position.
Despite the uncertainty, it is important that the expected changes are factored into any residency and domicile planning. The Labour Party have publicised their intention to abolish the existing non-dom regime, so we expect to see changes in some form regardless of the outcome of the next general election (which must take place no later than 28 January 2025).
What we know so far - individuals
- The current remittance basis of taxation for income tax and capital gains tax is expected to be abolished for UK resident non-doms from 6 April 2025. The last tax year in which a non-dom can claim the remittance basis will be 2024/25. Currently, the remittance basis can keep a non-dom’s foreign income and foreign gains outside the scope of UK tax for up to the first 15 years of UK tax residence (provided a claim is made, the foreign income and gains are not remitted to the UK and an annual charge is paid from year eight onwards).
- From 6 April 2025 onwards, new arrivers, whatever their domicile, can make a claim not to pay UK tax on foreign income and gains (including distributions from offshore trusts) for the first four years of UK tax residence. 10 consecutive years of non-residence are required prior to the year of arrival in order to qualify. Foreign income and gains arising in this four year period can be brought to the UK tax free. The same rules apply to existing UK residents who are still within their first four years of UK tax residence at the time.
- Non-doms who transition from the remittance basis to the arising basis from 6 April 2025 and do not qualify for an exemption under the new regime are eligible for a 50% reduction in the amount of their taxable foreign income for 2025/26 only.
- It will be possible to make an election to rebase the cost of foreign assets to the 5 April 2019 value for taxpayers who have claimed the remittance basis, are neither UK domiciled nor deemed UK domiciled at 5 April 2025 and held the asset at 5 April 2019.
- There is a limited opportunity for UK resident non-doms to remit foreign income and gains that have previously been protected by the remittance basis and pay tax at a tax rate of 12% for 2025/26 and 2026/27 only. This will not apply to pre-6 April 2025 foreign income and gains generated within trusts and trust structures.
- Where the transitional rules do not apply, all taxpayers who have been UK tax residents for more than four tax years will pay UK tax on their worldwide income and gains. The concept of domicile will cease to be relevant.
- The government is going to consult on changing the non-dom regime for inheritance tax (IHT). The finer details will be worked through following the consultation, but they have indicated that the preferred option is a residence based regime, potentially bringing worldwide assets within the scope of UK IHT after 10 years of UK residence, and with a 10-year ‘tail’ which keeps worldwide assets within the scope of UK IHT for 10 years after leaving the UK.
What we know so far - trusts
- Settlor interested trusts which currently qualify as ‘protected’ for income tax and capital gains tax purposes (very broadly meaning that foreign income and foreign capital gains are not taxed in the UK until and unless they are matched to distributions to UK residents) will lose that status from 6 April 2025 onwards.
- Foreign income and gains within formerly protected trusts will be tax free if they arise in the settlor’s first four years of UK tax residence, provided that he or she was non-UK tax resident for at least 10 years prior to arrival, otherwise, they will be taxable on the settlor as they arise.
- Foreign income and gains that arose prior to 6 April 2025 will continue to be matched to benefits and distributions to UK residents, other than where those benefits and distributions are made to beneficiaries and settlors who are within the new four year rule. Matched foreign income and gains will be taxed on the recipient beneficiary or settlor.
- UK assets within offshore trusts remain fully within the scope of UK IHT. The current IHT regime is expected to continue for non-UK property settled into trust by non-UK domiciled settlors prior to 6 April 2025.
- The IHT position for settlements made on or after 6 April 2025 is subject to consultation. It is proposed that the position may broadly depend on whether or not the settlor has been a UK resident for 10 years (or is within the 10 year ‘tail’ at the time the assets are settled and/or when the charge arises).
What action should be taken prior to 6 April 2025?
The actions required will depend on individual and trust circumstances and specialist advice will need to be taken by those affected. However, there are a number of planning possibilities that can be considered, including the following:
- Taking advantage of the transitional provisions to remit foreign income and gains which have previously been protected from UK tax by remittance basis claims, at a 12% tax rate. This window of opportunity applies only to the tax years 2025/26 and 2026/27.
- Planning the timing of a return to or departure from the UK so as to maximise the number of years for which foreign income and gains can be protected from UK tax.
- Settling new excluded property trusts before 6 April 2025.
- Being excluded as a beneficiary of a protected trust before 6 April 2025.
- Planning the timing of receipt of foreign income and gains (where this can be managed) to ensure that it is received in a year where the effective tax rate on receipt and/or remittance is minimised.
- Reviewing planned sales of foreign assets to identify any which may benefit from 5 April 2019 rebasing and which should be deferred until after 5 April 2025 (or which should be brought forward to benefit from an existing remittance basis claim).
We are here to help
If you have any questions on the anticipated changes, how they may impact your position and how to plan for them, please get in touch with your usual Azets advisor or a member of our specialist team.
