A new and stricter tax landscape awaits ‘non doms’ in the UK from the coming year, as the Labour government hardens plans to dissolve the ‘outdated’ tax benefits and revamp the inheritance tax (IHT) accountability. These stringent transition rules with a fresh residence-based model for IHT are expected to roll out from the 6th of April 2025, amplifying the original ideas proposed by the Conservatives in the March Budget.
The modern Inheritance Tax scheme
However, the full unveiling of the rebasing dates is deferred until the Autumn Budget, and no additional consultation rounds are in the pipeline. The modern Inheritance Tax scheme, substituting the current domicile-based system with a residence-based one, is predicted to come into play from 2025.
These changes hinge on whether the non-dom has been a UK resident during the last decade and will recalibrate the scale of properties incorporated into the UK Inheritance Tax for individuals and trusts.
No opportunity to voice public opinion
However, these amendments will not have a retrospective effect, meaning deaths occurring up to the effective date will remain unaffected by the new rules. An opportunity to voice public opinion on the changes isn’t expected either, as the Chancellor will evaluate responses from the earlier Conservative non-dom consultation.
Rachel Reeves, the Chancellor, admits the potential threat of a mass exit of affluent non-doms ahead of the rule change but asserts the government’s commitment to expunge the ‘outdated concept of domicile status’ from the taxation system. The government asserts that this will enhance the UK’s competitiveness globally, attracting the best talent and investment to the UK.
The transitional plans propelled by former Conservative Chancellor Jeremy Hunt, promising a 50% reduction in foreign income taxable for individuals losing remittance basis access in the new regime’s first year, are scrapped.
Four-year foreign income and gains (FIG) regime
Instead, the Labour government proposes to put into effect a four-year foreign income and gains (FIG) regime, providing 100% relief on FIG for new arrivals in their initial four years of tax residence, provided they haven’t been tax residents in the UK for a decade prior to their arrival.
In the transitional phase for Capital Gains Tax (CGT) purposes, current and past remittance basis users can rebase their foreign capital assets upon disposal to their value at the rebasing date. The government is contemplating the appropriate rebasing date and will delineate this at the Budget.
Temporary Repatriation Facility (TRF)
Moreover, from next year, there will be no tax protection for income and gains inside settlor-interested trust structures. However, the government plans to set a Temporary Repatriation Facility (TRF) in place for individuals taxed on a remittance basis.
Those who’ve previously claimed the remittance basis will have the option to remit FIG that arose before 6 April 2025 and pay a reduced tax rate for a limited period after the remittance basis has ended.
There are still many questions to be answered, but the impending changes are eagerly awaited by all.
Review of offshore anti-avoidance legislation
Additionally, a review of offshore anti-avoidance legislation is on the cards, including the transfer of assets abroad and settlement rules. The objective of this review is to eliminate ambiguity and uncertainty in the legislation while ensuring its simplicity and effectiveness.
In conclusion, changes are coming, and they’re set to redefine the landscape for the non-domiciled living in the UK.
Stay tuned for our update after the Budget on the 30th October for the final details.
