A new regime for non-domiciled individuals is on the horizon

In the 2024 Spring Budget, the Chancellor announced changes to how non-UK residents are taxed. The proposals from the Conservative Party give a general idea of how the new system for taxing foreign income and profits will work. However, there is still great uncertainty how these changes will operate. This article will summarize the information available so far.

Currently UK residents who are also UK domiciled individuals pay income tax and capital gains tax (CGT) in the UK on their worldwide income and gains.

UK residents who are non-domiciled individuals can choose to pay income tax and CGT in the UK on the remittance basis, following a claim under the Income Tax Act (ITA) 2007 section 809B. When a claim for the remittance basis is allowed, the personal allowance and annual allowance are lost.

There is an increasing remittance basis charge after seven years and twelve years of UK residence (ITA 2007 section 809H).

What does domicile mean?

Domicile of origin: a child born to married parents follows the domicile of the father, if the father is alive at the time of birth. A child born to unmarried parents follows the domicile of the mother.

Domicile of dependence: an unmarried child under the age of 16 will have a domicile based on their father’s or mother’s change in domicile

Domicile of choice: there is a significant amount of references in this area. In short domicile refers to whether an individual lives in a particular country and intends to live there permanently.

Proposed Non-dom reform on income and CGT tax.

There is not much information available after the announcement on March 6, 2024. The most helpful document is the HMRC technical note (last updated on April 23, 2024) because it covers almost everything from the Spring Budget 2024 papers.

New regime is called Foreign Income and Gains (FIG)

FIG will be available to individuals who become UK tax resident after 10 years of non-UK tax residence.

Under this regime, individuals will not pay tax on Foreign Income and Gains arising in the first four years and can remit funds to the UK without additional charges.

Individuals will need to make a claim each year to access the relief and will also lose entitlement to personal allowances and the CGT annual exempt amount.

To determine tax residence will need to consider automatic overseas tests, automatic UK residence tests, and the ‘sufficient ties’ test which is also called Statutory Residence Test (SRT)

There three transitional reliefs for existing non-domiciled individuals claiming the remittance basis currently proposed

1. CGT rebasing: Individuals can elect to rebase the value of personally held foreign assets owned on 5 April 2019 to their value on that date, but this relief does not apply to assets held in companies or trusts.
2. Income tax relief: In 2025/26, only 50% of foreign income will be subject to UK tax for those moving from the remittance basis to the arising basis on 6 April 2025 and who do not qualify for the new four-year FIG regime. This relief does not apply to gains.
3. Temporary repatriation facility: This provides a 12% rate for remittances of foreign income and gains (FIG) made in 2025/26 and 2026/27, where the FIG arose when the individual was taxed on the remittance basis and they are UK resident in the relevant tax year. After this period, pre-6 April 2025 FIG will be taxed at normal rates.

The current remittance basis will no longer be fully available after the 2024/25 tax year, but will be prospectively abolished.