Spring Budget 2024 – What do the changes to non-dom mean?

The Chancellor announced an overhaul of the non-domicile regime, or more accurately the remittance basis.

As was rumoured beforehand, the Chancellor announced in his Spring Budget on 6 March that there will be an overhaul of the non-domicile regime, or more accurately the remittance basis, from 6 April 2025.

Very briefly, the soon-to-be defunct remittance basis allowed those who were not long-term UK residents to not pay UK tax on overseas income and gains arising during their early UK residence provided they did not bring that money into the UK (or spend it in such a way to benefit them while in the UK, i.e. “remit” it). So they were only taxed on UK-arising income and gains and any remittances.

Initially, using the remittance basis only costs them their personal allowance (first 7 years), then it costs £30,000 per year (next 6 years), then £60,000 per year before it is withdrawn when they have been resident for 15 of the previous 20 years.

The new measure instead gives new arrivals to the UK full tax relief on their overseas income and gains – no UK tax to pay at all – for the first 4 years of UK residence. They can bring these funds to and spend these funds in the UK with no additional tax charge. After this they are taxed in the UK on their worldwide income and gains. These individuals must have been non-UK resident for 10 consecutive years prior to arrival to qualify.

This is comparable to the famous “Beckham law” in Spain, where newly arrived individuals could be taxed as though non-resident for their first few years of residence there.

The Government has also announced their transition measures for this change:

• Individuals who have been using the remittance basis but do not qualify for the new regime will benefit from a 50% reduction in foreign income subject to tax for the fiscal year 2025-26. Only IF still non dom at April 2025.
• For those who previously used the remittance basis, gains on the sale of capital assets made after April 2025 may be taxed based on their 2019 value rather than their original cost (re-based). Only IF still not UK Dom at April 2025 under old rules.
• Those who have used the remittance basis pre-April 2025 can remit their formerly protected income and gains at a rate of 12% during 2025/26-2026/27, under a new Temporary Repatriation Facility.

The government are intending to follow up with an overhaul of the IHT system to a residence-based regime, though they have confirmed there will be no change to the IHT protection of offshore assets settled into offshore trusts prior to April 2025 – so some IHT planning opportunities remain available for one more year.

However, there will also be some impact on income and gains within these trusts:

• protected status will be abolished and income and gains within the trust will be taxable on their settlor from April 2025,
• pre-April 2025 foreign income and gains within these non-UK trusts, that benefitted from this protected status, will only be taxed when matched with distributions (or benefits) paid to individuals who have been UK resident for more than 4 years.

The transitional rules create some opportunities for planning particularly triggering foreign income gains before April 2025 so that they can be remitted in the new two-year repatriation window at the 12% rate.

There are also opportunities to create trust structures which could confer long-term IHT benefits by adding assets to protected trusts prior to April 2025.

We recommend that you seek professional advice in this area.

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