Reform of the UK Non-Dom Tax Regime
Starting from 6 April 2025, the UK will implement significant changes to the taxation of non-UK domiciled individuals (non-doms) and offshore trusts they have created, as announced in the Autumn 2024 Budget. This summary outlines the proposed reforms and actions non-doms and trustees should consider before the changes take effect.
Current Non-Dom Regime
Non-doms, who are UK tax residents with permanent homes outside the UK, currently benefit from the remittance basis, where overseas income and gains are only taxed if brought into the UK. Those deemed UK domiciled (residents for 15 of the past 20 years) are taxed on worldwide income and gains and cannot use the remittance basis. Non-doms are only subject to UK inheritance tax (“HT”) on UK assets, while deemed doms face IHT on their worldwide estate.
Upcoming Changes
From 6 April 2025, the non-dom regime will be replaced by a 4-year, Foreign Income and Gains (FIG) regime based on the tax payers’, tax residence status. Taxpayers not qualifying for the FIG regime will be taxed on their worldwide income and gains as they arise. The concept of long-term tax resident (LTR) will be introduced and domicile will be removed for all tax purposes.
FIG Regime
The FIG regime applies to those becoming UK tax residents after 10 consecutive years of non-UK residence, allowing them to pay no tax on most foreign income and gains for the first 4 years. UK domiciled individuals who have been non-UK residents for at least 10 years can also access FIG. FIG claims must be made on self-assessment returns, and taxpayers lose their personal allowances and chargeable gains exemption if they claim FIG.
Transitional Reliefs
A temporary repatriation facility (TRF) will be available for those who previously claimed the remittance basis, allowing them to bring unremitted overseas income and gains to the UK at reduced tax rates. Capital gains tax rebasing is also available for certain assets held since 5 April 2017.
Inheritance Tax Changes
IHT will shift to a tax residence regime, with LTR individuals subject to IHT on their worldwide estate. UK domiciled individuals who have been non-resident for at least 10 years will only face IHT on their UK assets.
Offshore Trusts
From 6 April 2025, protections for offshore trusts will be lost, and settlors will be taxed on all trust income and gains, if they retain a benefit in a trust they have created, unless they qualify for the FIG regime. The TRF will be available for distributions from offshore trusts within three years leading up to 5 April 2028.
How Bright Grahame Murray Can Help
The new rules are complex, and it is crucial to understand their impact on your circumstances. Bright Grahame Murray can assist with advice on mitigating the impact of these changes for non-doms and their trusts. For example, maximizing the remittance basis, use of the TRF, breaking UK tax residence, and reviewing other reliefs that might apply to trust distributions.
Conclusion Non-dom individuals and trustees should consider their specific circumstances and take necessary actions before 6 April 2025 and during the TRF period to 5 April 2028.
For a detailed overview, please read the full PDF version.
