The Chancellor of the Exchequer, Jeremy Hunt, (who determines the UK’s economic/tax policies) recently announced a significant overhaul to the tax treatment of non-domiciled individuals (non-doms) in the UK during the Spring Budget 2024.
This move aims to replace the existing system with a more straightforward and modern approach based on residency, effective from 6 April 2025.
Currently, non-doms, or those living in the UK but domiciled elsewhere, can opt for taxation on either the remittance basis or the arising basis.
The remittance basis allows them to pay UK taxes only on foreign income and gains that they bring into the country, with a Remittance Basis Charge (RBC) applied to long-term UK residents.
On the other hand, the arising basis taxes them on their worldwide income and gains, regardless of whether it is brought into the UK.
New Foreign Income and Gains rules
Under the forthcoming changes starting 6 April 2025, the distinction between these options will disappear and replaced with a residence-based test. For new UK residents for the first four years of residency they will not be subject to tax on their FIG and the FIG can also be brought to the UK tax free.
This is conditional on demonstrating a non-resident status in the UK for a consecutive 10 years prior to their arrival.
The reform aims to simplify the tax system for non-doms, with those not fitting the new criteria facing a transition period.
Transitional provisions
During this transition period, affected individuals who are already non doms and can no longer use the remittance basis will be taxed on only half of their foreign income for that year, although this concession does not apply to gains from the sale of foreign assets.
Additionally, a scheme will allow for the rebasing of foreign assets to their market value as of 5 April 2019, for sales after 6 April 2025.
To facilitate the transition and encourage the repatriation of foreign wealth, the UK Government will introduce a temporary repatriation facility offering a reduced tax rate of 12 per cent on foreign income and gains brought into the UK for the 2025-26 and 2026-27 tax years.
Overseas Workday Relief (OWR)
The Overseas Workday Relief (OWR) attracting global talent by offering tax relief on earnings related to duties performed overseas during the first three years of UK residency will remain in place.
For those impacted by these changes, it’s essential to reassess tax strategies, considering restructuring investments, gifting, and Inheritance Tax planning to align with the new rules.
Investing in UK assets, diversifying income, and reviewing residency status may also be prudent steps.
Given the complexity of these changes, consulting an international tax adviser is crucial for navigating the new tax landscape effectively.
