Posted by Lenka Bentall on 04 Sep 2024

Reform of the UK rules for non-domiciled individuals

Introduction

The Government has issued a policy paper to confirm the Labour party’s direction of travel regarding changes to be made to the taxation of non-UK domiciled individuals.  A link to the latest update on this from the Government is attached below:

https://www.gov.uk/government/publications/2024-non-uk-domiciled-individuals-policy-summary/changes-to-the-taxation-of-non-uk-domiciled-individuals

Policy commitment

The paper confirms Labour will commit in many ways to the policy proposals in this area issued by the previous Conservative Government.

Detail

The changes are expected to be introduced from 6 April 2025 onwards.  Labour intends to abolish the remittance basis of taxation from this date.  A new regime for individuals arriving in the UK will apply:

1. There will be an exemption from UK tax on foreign income and gains (FIG) for the UK tax year that the individual becomes UK tax resident and the following three UK tax years of UK tax residence, providing the individual has been a non-resident of the UK for 10 consecutive years prior to becoming UK tax resident.
2. A version of Overseas Workday Relief will be kept, but no further details have been revealed at this stage.
3. Protection from UK tax on FIG arising within settlor interested trust structures will no longer be available for non-domiciled individuals that do not qualify for the new FIG regime. Trusts set up by non-domiciled individuals will no longer provide protection from UK IHT although some transitional rules will apply to trusts already in place.
4. Inheritance tax (IHT) will also alter to a tax residence based system, and it is proposed that foreign assets will be liable to UK IHT if an individual is UK tax resident for the 10 years prior to death or the chargeable event. Individuals will stay within the scope of UK IHT for 10 years after they become a non-resident of the UK.
5. Transitional rules proposed by the Conservatives, whereby individuals who were previously able to use the remittance basis but who are ineligible for the new 4 year FIG regime would be taxed on just 50% of their FIG for the 2025/26 tax year, are to be shelved.
6. Current and past remittance basis claimants will be able to rebase foreign capital assets to their value at the ‘rebasing date’ for UK capital gains tax purposes, but details of the rebasing date have not been announced.
7. A new temporary repatriation facility (TRF) will be available so that individuals who have claimed the remittance basis in prior years will be able to remit to the UK their FIG from years prior to 2025/26 at a reduced tax rate for a limited period. However, the rate of tax and the length of time the TRF will be available are to be confirmed.  The Conservatives had proposed a tax rate of 12% for two years.   The new Government also says it is exploring ways to expand the TRF rules to cover stockpiled income and gains within foreign structures, such as non-UK trusts.

 

UK Budget date

The Autumn Budget for the new Government will take place on 30 October 2024, following which further clarity on these issues will emerge.

 

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