What do we know about the new non-dom regime?
In the Spring Budget 2024, Chancellor Jeremy Hunt unveiled plans to reform the remittance basis of taxation which can apply to non-UK domiciled, UK resident individuals. These changes are intended to take effect from 6 April 2025, so the current non-dom regime will remain for the 2024/25 tax year.
Currently, non-UK domiciled individuals can opt to be taxed just on their UK income and gains plus any overseas income and gains that they bring into the UK in some form. This is subject to specific conditions being met and, in some cases, an annual charge. It is also limited to a maximum of 15 tax years after which UK resident individuals have to move on to a worldwide basis of taxation.
The newly proposed non-dom regime will be based on a person’s residence rather than domicile whereby individuals arriving in the UK, previously non-tax residents for ten years, won’t be taxed on non-UK source income or gains for the first four years. This can therefore benefit UK domiciled individuals returning to the UK as well as non-doms. Unlike the current regime the proposals would allow the tax-free remittance of non-UK source income or gains arising during those four years.
Making a claim under the new non-dom regime, much like the current regime, means you will not be entitled to the tax-free personal allowances and the capital gains tax annual exempt amount for that year. Hence, for lower earners they may decide to disclose on the worldwide basis during the first four years to benefit from the tax-free allowances. After four tax years of UK tax residence, individuals will be taxed on worldwide income and gains at prevailing rates.
The new regime will be available to individuals with less than four tax years of UK residence on April 2025, provided they were non-UK tax residents for ten consecutive tax years prior to arriving in the UK. So for those who have recently arrived they can move onto the new regime for any remaining tax years within the four-year period. For example, an individual who had never been resident in the UK before who became tax resident on 6 April 2023, could use the new regime for the 2025/26 and 2026/27 tax years. After that they will have been resident here for four years and therefore would have to go onto a worldwide basis from 2027/28.
There were further announcements to ease the burden for those who will suddenly find themselves having to declare on a worldwide basis:
• Those transitioning from the exiting non-dom regime and ineligible under the residency based tests will face tax on 50% of their overseas income in the tax year 2025/26. Gains will be taxable in full.
• Normally when calculating the capital gains tax on the sale of an asset by a UK resident individual you can deduct the original cost of the asset (even if it was purchased long before becoming UK tax resident). Under the transitional rules any Non-domiciled individuals who have used the remittance basis in the past and who will not become deemed domiciled before 6 April 2025, can elect to rebase non-UK assets held at 5 April 2019, for capital gains tax purposes provided they owned the asset on that date.
• A new temporary repatriation facility was announced to encourage non-doms to bring their funds into the UK to benefit the UK economy. Any unremitted foreign income and gains arising before 6 April 2025 that have not been subject to UK tax, can be remitted to the UK during the 2025/26 or 2026/27 tax years at a special low rate of 12%
A UK domiciled individual is liable to Inheritance tax on their worldwide assets. Notably this includes those who become deemed domiciled having been tax resident for 15 out of the past 20 years. The Government also intend to make inheritance tax (IHT) reforms to again remove the reliance on the concept of domicile and make it a residency-based test instead. A consultation is due to be issued later in the year regarding these changes.
Given there has to be a general election before 6 April 2025, it is entirely possible all of the above will be superseded, so we will provide updates as and when we know more.
If the new non-dom regime is likely to impact upon your tax affairs and you would like to speak to a member of our team to help you plan accordingly, please contact us on 020 7870 9050 or email us at hello@rpgcc.co.uk.
