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Budget 2024: Replacing Non-UK Domicile tax rules with a residence-based regime

After weeks of trailing, changes to the UK non-dom tax regime have finally been announced.

The UK Chancellor yesterday announced a complete overhaul of the personal taxation of individuals coming to the UK from overseas, including replacement of the current remittance basis regime with a new, residence-based ‘FIG’ regime. The changes will have effect from April 2025 and there will be transitional provisions to ease the impact on existing users of the non-dom tax regime.

In brief, the government plans to abolish the remittance basis of taxation and replace it with a system, the foreign income and gains (FIG) regime, under which individuals who opt into the new regime will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for a 10-year period.

For a more in-depth review of our latest guidance, you can download our Non-dom tax changes note here.

The introduction of the new regime will also be eased by:

  • The continued application of the remittance basis to pre-6 April 2025 FIG of individuals who have previously claimed the remittance basis 
  • An option for former remittance basis users to rebase the value of capital assets to 5 April 2019
  • A temporary 50% exemption for the taxation of foreign income (but not capital gains) for the first year of the new regime (2025/2026).  This will be available for those who have previously claimed the remittance basis but are not eligible for the new four-year FIG regime
  • A two-year Temporary Repatriation Facility available to individuals who have been taxed on the remittance basis under which they may bring previously accrued foreign income and gains (but not pre-6 April 2025 FIG generated within trusts and trust structures) into the UK at a 12% rate of tax
  • Overseas Workday Relief will be brought into line with the new FIG regime.

In relation to non-resident trusts specifically:

  • Distributions from non-resident trust will be included in the FIG regime so will not be taxed on those below the four year residence threshold described above
  • FIG arising in non-resident trust structures from 6 April 2025 will be taxed on a non-dom settlor or transferor, if they have been UK resident for more than four tax years, on the arising basis 
  • Pre-2025 FIG will be taxed on settlors or beneficiaries if they are matched to worldwide trust distributions (so we do not escape the complexity of the matching rules after all)

There will also be a consultation on changes to inheritance taxation and a move to a regime, from 6 April 2025, that is based on length of residence in the UK rather than domicile.  It is envisaged that the new rules will involve charging IHT on worldwide assets owned outright when a person has been resident in the UK for 10 years, with a 10 year ’tail’ when inheritance tax will continue to apply after the person has ceased UK tax residence.  However, it is also intended that excluded property trusts will remain outside the scope of inheritance tax.

This is a summary and we will probably find the devil in the detail as we go through it. What is clear is that there will be both winners and losers. 

Read more about Irwin Mitchell's expertise in International Tax.