Posted by Lenka Bentall on 08 Mar 2024

Important – Major Changes to Taxation of Non Doms in the Spring Budget with Removal of the Remittance Basis of Taxation – ACTION REQUIRED.

From 6 April 2025, the remittance basis of taxation that is currently available to non-domiciled individuals will be replaced by a Foreign Income and Gains (FIG) regime that is described as “simpler and fairer”.

New arrivals in the UK, who have not been resident in the UK at any point in the previous 10 tax years, will be entitled to claim full tax relief on foreign income and gains for the first four tax years of UK tax residence under the statutory residence test, regardless of whether those income and gains are brought into the UK. If the claim for the FIG treatment is made for a tax year, then no personal allowances will be available for that tax year. Current UK tax residents who have been resident for fewer than 4 tax years will also be able to claim the same relief for any period of their first 4 tax years of UK residence that falls after 5 April 2025. Once the 4 year period of relief has ended, a UK resident individual will be subject to UK tax on their worldwide income and gains.

Overseas Workdays Relief (OWR) will continue to be available under the FIG regime for the first three tax years of UK residence, but only to individuals who are eligible for the FIG regime. The relief from taxation under OWR will be available even if earnings are brought into the UK.

The removal of the remittance basis from 6 April 2025, will also change the taxation of the income and gains of settlor interested trusts, as settlors who do not qualify for the FIG regime will become taxable on income and gains of the trust as they arise, regardless of whether the income and gains are distributed or remitted to the UK.

Transitional rules will ease the introduction of the new regime:

• There will a one-time 50% reduction in the foreign income subject to tax in the 2025/26 tax year for non-doms who move from the remittance basis to the arising basis on 6 April 2025 and who are not eligible for relief under the new 4 year rule. The reduction will not apply to foreign chargeable gains. 
• The base cost of capital assets that were owned by the tax payer as at 5 April 2019 will be re-based to their 5 April 2019 value for disposals made after 6 April 2025 by current non-doms who have claimed the remittance basis.
• During the 2025/26 and 2026/27 tax years, non-domiciled individuals will be able to remit foreign income and gains that accrued prior to 6 April 2025 at a reduced 12% rate of tax.

 

The government has not yet decided how changes to domicile status will impact on inheritance tax, but anticipate a residence-based system that will expose a person’s worldwide assets to IHT when they have been resident in the UK for 10 tax years and which will continue to apply until a person has been non-resident in the UK for at least 10 tax years. To provide certainty, it has been confirmed that the tax treatment of non-UK assets settled into a trust by a non-UK domiciled settlor (an excluded property trust) prior to April 2025 will be protected from any IHT changes.

There are a few key tax planning points that may drive key decision making:

• There is a two-year opportunity to bring income and gains that have been protected from UK taxation under the remittance basis into the UK at a temporary 12% rate of tax. Once this two year window from 6 April 2025 to 5 April 2027 has passed, such remittances will be taxed at the normal rates of income tax/capital gains tax.
• Excluded property trusts established prior to April 2025 should be protected from changes to the IHT regime.
• When arriving in the UK, there will be a four-year opportunity to receive non-UK income and lumps sums and to crystalise non-UK capital gains that will be protected from UK tax under the FIG regime.

 

It is worth keeping in mind that there will be a general election before April 2025, which may lead to a change of government and therefore changes to how the new FIG regime is eventually introduced. 

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com

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