With a similar move for inheritance tax further down the line, those affected are having to take stock and consider how best to navigate this brave new world.
At present, non-UK domiciled individuals can elect into the UK’s remittance basis regime meaning they only pay tax on foreign income and gains brought into the UK. Most non-UK assets held by non-doms also sit outside the scope of the UK Inheritance Tax (IHT). UK income and gains and UK situs assets remain subject to UK tax.
Under the proposed changes, from 6 April 2025 individuals who have been resident in the UK for more than four years will pay UK tax on their worldwide income and gains. Individuals who have been resident in the UK for ten years will also become subject to UK IHT on their worldwide assets. The IHT proposals are, however, subject to further consultation.
The most significant change is that individuals will no longer be able to claim the remittance basis and instead worldwide income and gains will become taxable in the UK.
Foreign income and gains of offshore trust structures set up by non-dom individuals could also become taxable on UK resident settlors. Previously, non-dom settlors were able to claim the remittance basis to avoid these foreign income and gains being taxed.
For the 2025/26 tax year only, when an individual moves from the remittance basis, only 50% of their foreign income will be subject to UK income tax. This transitional rule will not apply to foreign gains.
Capital Gains Tax rebasing will be available to individuals who have previously claimed the remittance basis and are not UK-domiciled or deemed domiciled on 5 April 2025. Where foreign assets are disposed of on or after 6 April 2025, individuals can elect to rebase these assets to the 5 April 2019 value, potentially wiping out some of the capital gain arising. This rebasing will be subject to meeting certain conditions, details of which have not been released yet.
In 2025/26 and 2026/27, individuals will also have the ability to remit foreign income and capital gains on which they have previously claimed remittance basis at a reduced tax rate of 12% under the Temporary Repatriation Facility.
We are also expecting a relaxation of the ordering rules which currently deem income and gains to be remitted in a specific order.
As part of the announcements, new arrivals to the UK will be eligible for a new Foreign Income and Gains Regime (the “FIG Regime”). Under this new regime, qualifying individuals can elect for foreign income and gains to be exempt from UK tax.
Electing into the FIG regime will result in the loss of personal allowances and Capital Gains Tax annual exemption as is the case for remittance basis users. Qualifying individuals however will not be taxed on their foreign income or gains regardless of whether that income or those gains are brought to the UK.
This regime will be available in the first four years of residence, provided the individual has been a non-UK resident for at least the previous ten years.
There is no requirement under the FIG regime for foreign income and gains to remain outside of the UK, which differs from the current remittance basis regime.
Individuals may need to consider how they structure their post-6 April 2025 income and gains so that they do not become mixed with income and gains on which the remittance basis has previously been claimed, although the mixed fund ordering rules are expected to be relaxed somewhat.
Non-UK assets settled into trust by a non-UK domiciled individual before 6 April 2025 will remain excluded property and therefore outside the scope of UK IHT. This continued IHT benefit means that individuals with existing excluded property trusts may still find it more attractive to retain these structures, despite the income and gains potentially becoming taxable on them.
Accordingly, those who are currently non-domiciled may want to consider settling non-UK assets into a Trust before 6 April 2025 to take advantage of this continued protection.
The reduced rate of tax for remitted foreign income and gains in 2025/26 and 2026/27 is extremely favourable compared to normal tax rates of up to 45% and presents an incentive to bring these funds to the UK in the transitional period. Individuals may also now consider delaying any remittances until after 6 April 2025 to take advantage of this temporary reduced tax rate.
For non-doms have not previously claimed the remittance basis, they should weigh up the benefits of doing so with the potential cost, given that some of the transitional provisions noted above are only available to those who have previously made a remittance basis claim.
Individuals who originally planned to come to the UK before 6 April 2025 might consider delaying their arrival to take full advantage of the new four-year FIG regime.
For new arrivals to the UK, the regime will be very attractive. Several countries have a tax regime with the aim of attracting wealthy individuals but these often come with a requirement to, for instance, invest several hundred thousand Euros or pay a tax charge. The new UK regime will have no such requirement so is very generous for four years, after which residents will be taxed on their worldwide income and gains. Those who wish to benefit will need to make an election so need to be on top of their tax filings once they come to the UK.
There will be certain professions where this could have a significant impact – for instance, top-tier foreign football players will typically keep their wealth out of the UK as they are generally able to get by on just their club salary. This will no longer be effective after 4 years of UK residence so we might see contracts limited to 4 years, after which the player moves on to another league.
We may see a rise in individuals using the UK as a temporary place of residence. In particular, the FIG regime will be attractive for business owners looking to realise a gain on or extract dividends from their non-UK business which they will be able to do without incurring any UK tax.
Consideration will need to be given to how the new rules work with existing double tax treaties. Often relief is only available in the source jurisdiction where the income or gains are taxed in the host jurisdiction – as the new FIG rules will not bring the income into UK taxation, the taxing rights may well fall back to the country where the income or gains are derived from.
There will no doubt be planning points arising from the change – in particular the lower tax rate available under the Temporary Repatriation Facility will influence the timing of remittances for anyone who has previously claimed to be taxed on the remittance basis.
And existing structures will need to be reviewed to understand the consequences of these changes. Trusts and offshore companies may need to be amended or unwound entirely to avoid punitive tax charges.
The Government has given advanced notice of the changes so there is sufficient time to plan before the new rules take effect. However, reviewing, analysing and implementing plans will take time so we are encouraging our clients to take action sooner rather than later.
As a fully integrated international firm, we work as a global team to advise individuals with multijurisdictional issues, ensuring their affairs are both structured in a tax-efficient manner and are compliant, wherever they are based.
If you are a non-dom currently residing in the UK or are looking to move to the UK and are looking for some advice on these changes, please do not hesitate to get in touch.
As part of the Budget announcements, new arrivals to the UK will be eligible for a new Foreign Income and Gains Regime (the “FIG Regime”). This is set to apply from 6 April 2025. For new arrivals to the UK, the regime could be very attractive.
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