The new Labour government is taking steps to ensure that every long-term resident of the UK pays their taxes in the UK.
“Non-dom” describes the tax status of a UK resident whose permanent home – for tax purposes – is outside the UK. Currently, non-doms do not pay UK tax on money they earn outside of the UK. The Chancellor, Rachel Reeves, plans to replace the UK tax system’s domicile status with a new evidence-based regime. She is also reforming the transition rules previously announced by the former government.
A four-year foreign income and gains (FIG) policy starting in April 2025 applies to those who become UK tax residents after ten years of non-UK residence. After the first four years, each non-dom will be liable to pay UK tax on income and gains achieved worldwide.
The previous government offered a temporary reduction in taxation on foreign income for the 2025/26 tax year, with only 50% of FIG taxed. This transitional step has been removed. Further announcements – especially regarding transferring assets abroad and trusts – are expected as part of the autumn budget on 30 October.
What transitional arrangements remain in place?
- The option to rebase the value of capital assets remains. However the government is considering the appropriate rebasing date (previously 5 April 2019). This will be announced within the autumn budget.
- Current UK tax remittance rules will apply to FIG arising prior to 6 April 2025. Those eligible for the four-year regime may also use this approach.
- A new Temporary Repatriation Facility (TRF) will be available for individuals taxed on the remittance basis. Further details are to be announced as part of the autumn budget.
New rules for inheritance tax
Inheritance tax (IHT) is currently a domicile-based system. The government intends to replace this with a new residence-based system from 6 April 2025. This will affect the scope of property brought into UK IHT for individuals and trusts. It is keen to end the use of Excluded Property Trusts to keep assets out of the scope of IHT.
A basic test for assessing if IHT applies non-UK assets is envisaged. The government’s current thinking is that IHT would apply if ‘a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event (including death) arises.’ There would also be ‘provision to keep a person in scope for 10 years after leaving the UK.’ (Source gov.uk)
What happens now?
‘While the government is finalising its plans, non-doms should review their assets and FIG, proactively looking at how to remain as tax efficient as possible within the new regime,’ says Emily Bridges of re:accounts Chartered Accountants in Stevenage. ‘Whether UK or international tax applies, it’s great to know your tax bill is as low as possible.’
Are you affected by the changes to non-dom rules and taxation? We specialise in this area. Talk to the team at re:accounts. No one should pay more tax than they need to.
