I’M A NON-DOM … Get Me Out of Here!

Is there really a need to make a “panic” exit from the UK ?

As a tax adviser specialising in matters concerning internationally mobile clients, I have been working with new and existing clients since the 12 March (Budget Day) who are UK tax resident and non-UK tax domiciled – “non-doms” to review whether they should “pack their bags” and make plans to permanently leave the country before the 6 April 2025.  Budget Day provided sweeping and far-reaching changes to the existing rules that enable a non-dom’s, who are broadly individuals born overseas with enduring connections with another country, to manage UK tax liabilities on overseas income and capital gains that are not brought into the UK by making use of the remittance basis of assessment in preference to the standard worldwide arising basis of assessment.

The proposed changes put forward by the Conservative party Chancellor are likely to have a profound impact on the assessment of income and capital gains tax liabilities and also on inheritance tax for non-doms.

As with any changes in the law, there will be winner-and-losers and for some will find the new proposals advantageous to their particular circumstances. “The devil is in the detail” as they say.

There is an added problem In that these proposals have yet to make it to statute law, and since the UK is in the processing of a General Election cycle there may be further changes that need to be considered.

At this time, the headline change announced in the Budget is that the existing rules concerning the identification of non-dom status, which has long been argued as being vague and incompatible with the modern world, is to be scrapped and  will be replaced with a new regime that makes use of the existing Statutory Residence Test (in force, by law from the 6 April 2013) through which general tax residence is determined.

Key Reforms ( as currently proposed) :

Current Tax Regime:

• Income Tax and Capital Gains Tax: UK residents who are non-domiciled currently have the option to claim the remittance basis, taxing only their UK-sourced income and gains unless foreign income is brought into the UK. After 15 out of 20 tax years of UK residency, they become deemed domiciled and taxed on worldwide income and gains.
• Inheritance Tax (IHT): Currently assessed based on the donor’s or deceased’s domicile status. UK domiciled or deemed domiciled individuals are taxed on worldwide assets, while non-domiciled individuals are only taxed on UK assets.

New Tax Regime (Effective April 6, 2025):

• Income Tax and Capital Gains Tax: Introduces the Foreign Income and Gains (FIG) regime. UK residents after 10 consecutive years of non-residence can claim four years of relief from UK tax on foreign income and gains, regardless of remittance.
• Inheritance Tax (IHT): Transition to a residence-based system where individuals will be liable for IHT on worldwide assets after 10 years of UK residency. Additional factors such as citizenship and place of birth may also influence IHT liability. Currently, it is also thought (under general proposal) that a 10-year tail will also apply to an individual that become liable to IHT on worldwide wealth on death.

Transitional Provisions and Rebasing:

• Existing non-domiciled residents can benefit from rebasing foreign assets to their value as of April 5, 2019, under specific conditions.
• For 12 months from 6 April 2025, non-doms taxed on the remittance basis in 2024/25 will only pay tax on 50% of their foreign income (this does not apply to capital gains).
• A temporary repatriation facility allows previously accrued foreign income and gains to be remitted to the UK at a reduced tax rate of 12% for two years (2025-26 and 2026-27).

Offshore Trusts:

• From April 6, 2025, protections for non-UK domiciled settlors will be removed unless they qualify for the FIG regime. Income and gains within settlor-interested trusts will be taxed on UK resident settlors on an arising basis.

The proposed changes, subject to consultation, will depend on the political landscape after tomorrow  – 4 July.

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