Budget: Non-dom reforms are going ahead from April 2025

What a Budget! Not only did Rachel Reeves give one of the longest Budget speeches in recent history, she also seems to have produced one of the biggest crops of detailed changes (at least in the Private Client world) in recent history. In the non-dom space, we finally have a lot more meat on the bones of the policies previously announced and an awful lot of detail to digest – including 103 pages of draft legislation. Even the technical note runs to 34 dense pages of policy description. 

This article is a ’whistle stop tour’ of the main highlights of the policy paper on the changes to the remittance basis and the move from a domicile to a residence basis of taxation. 

Non-dom reforms are going ahead from April 2025

So, what are the headlines? Yes, as expected, the non-dom reforms are going ahead and, as it turns out, any rumours of delay or watering down were greatly exaggerated. It’s fair to say that there were no great surprises in the Budget announcements – at least none that jump out of the pages that have been published. That doesn’t mean some of the detail isn’t very interesting, however.

So, beginning with the basics, which we already knew:

• All UK resident individuals will pay tax on their worldwide income and gains arising after 5 April 2025 and the remittance basis will come to an end;
• There will be a four-year FIG (foreign income and gains) regime available for those who come to the UK after 10 years of non-UK residence;
• There will be a Temporary Repatriation Facility (TRF); and
• There will be some rebasing for capital gains.

In addition, as previously announced, inheritance tax (IHT) will become a residence-based system with effect from 6 April 2025 (our article ‘The new look inheritance tax’ goes into more detail) and domicile will become a largely irrelevant concept in the tax world (bar some transitional provisions and perhaps for the purpose of some estate tax treaties). So that’s the headlines, let’s have a peer at some of the detail (a kind of helicopter view at this stage).

The four-year FIG regime

Qualifying individuals will be able to claim relief from UK tax for any non-UK income and gains arising in the first four years of their UK tax residence.

The four-year FIG regime will be available to those who come to the UK after a period of 10 consecutive years of non-residence and will apply from 6 April 2025. It is important to highlight that this regime can apply to so called ‘Brits abroad’ who are returning to the UK after 10 consecutive years of non-UK residence.

It will be available for the first four tax years of UK residence and, for this purpose, split years and years of treaty non-residence will count. It will only be available for a maximum of four consecutive years from the first year of residence.

An individual can claim only for income, only for gains or for both. They will need to make a claim for each source of income and/or gain on which relief is being sought and will need to include amounts on their tax return. Individuals who claim relief under the four-year FIG regime will lose entitlement to the personal allowance for income tax and the annual exempt amount for capital gains tax (CGT). The technical note contains a long list of the income and gains that will qualify (or not) for the regime. Offshore income gains are included in the list of qualifying income but, perhaps unsurprisingly, gains from offshore life insurance policies will not qualify.

There are special (and complex) rules dealing with benefits from offshore trusts and income subject to transfer of assets abroad rules in respect of the FIG regime. In most cases benefits received by a qualifying individual in this period won’t be matched to income and gains and won’t be taxable, but neither will they reduce the income and gains available to be matched. However, there is some complexity around this including a proposal to amend the already fiendishly complicated onward gifting and close family members rule for those receiving amounts while in the four-year FIG regime.

CGT rebasing

The policy document published confirms that there will be rebasing for personally held assets for current and past remittance users for disposals after 6 April 2025. 

To qualify, individuals cannot have been either UK domiciled or deemed domiciled at any time before tax year 2025/26 and they must have claimed the remittance basis in one of the tax years 2017/18 to 2024/25 (meaning that for those that would not otherwise qualify there is still time to make a claim). However, assets will be rebased to their market value as at 5 April 2017 (rather than the original 2019 proposal) which was the date of rebasing that applied automatically to those becoming deemed domiciled for the first time on 6 April 2017. Those individuals will be able to continue to benefit from that rebasing provided they continue to meet the relevant conditions up to the end of 2024/25.

Assets held in trusts, which previously benefitted from rebasing (to market value as at 5 April 2008) will not qualify for any further rebasing. At present however, this rebasing only applies to gains matched to benefits paid to the settlor or other beneficiary. From 6 April 2025, when many settlors will become taxable on gains as they arise, this 2008 rebased value can be used. This means effectively any trust set up in the last 16 years will not benefit from any rebasing and that for gains coming into charge on the settlor on an arising basis for the first time, there is no relief for any growth in value over the last 16 years. This may impact the decisions of settlors and trustees about when and how they want to crystalise unrealised gains, sell assets and take benefits out of existing trusts.

Overseas workday relief

As previously announced, overseas workday relief will be retained and will still be based on income which relates to overseas duties determined on a just and reasonable basis. Eligibility will be primarily based on meeting the conditions for the four-year FIG regime and relief will apply for the four year period regardless of whether earnings are brought to the UK. A number of very detailed rules (and draft legislation) were published with the Budget papers.

Temporary repatriation facility (TRF)

The TRF will be introduced from 6 April 2025 and will be available for three years. ‘Designated amounts’ (see below) will be subject to a tax rate of 12 percent in the first two tax years (2025/26 and 2026/27) and then 15 percent for 2027/28, the final year.

Individuals will be able to designate amounts which either are or derive from FIG arising prior to 6 April 2025. Amounts designated will need to be included on tax returns and any tax will be payable in that year. These amounts can then be remitted to the UK at any time without further tax and without any report made to HMRC.

Individuals can nominate amounts which are both liquid (i.e. cash) or illiquid – in the form of, say, a painting, a house, or perhaps a share portfolio. It is also possible to make a partial designation for a mixed account. Where foreign tax has been paid on amounts, this is not deductible, but it is the net amount which is designated (and taxed).

It is possible to designate all or part of an account or asset and HMRC also suggest it is possible to designate amounts of uncertain origin where an individual no longer has records to confirm original source (we would not be surprised if they might be looking more closely for this evidence in the future?).

There are some complex rules around mixed funds, but, essentially, designated amounts will leave these accounts first for remittance basis purposes (which remains a relevant concept here), but the continuing application of the offshore transfer rule means this may not always be straightforward. There are also some complex rules around Business Investment Relief (BIR). Those with BIR investments may want to speak to their advisor about the impact of these rules and possible options when an investment ceases to qualify.

There are also rules allowing individuals to designate unremitted FIG in offshore trusts and other offshore entities that they have received or has been attributed to them before 6 April 2025, including amounts which arose prior to 6 April 2025, but which are matched to benefits they receive during the three-year TRF period.

Conclusions

These are fundamental changes for non-doms who will pay UK tax on all their worldwide income and gains arising after 5 April 2025. These rules are also important for UK domiciled individuals living overseas (‘Brits abroad’).

Each individual will need to work out the impact and cost of these changes on both themselves and their families and consider, for example, how to fund additional UK tax liabilities and any changes to their current structures they might wish to consider in advance of the introduction of these new rules from 6 April 2025.

For further information please contact:

• Gavin Shaw
• Edward Brown