The end of the non-UK domiciled tax regime?

Is it the end of the non-UK domiciled tax regime?

In the Spring Budget, the Chancellor proposed to replace the taxation of non-UK domiciled (non-doms) regime with a modernised ‘UK residence-based’ regime that is simpler, fairer and more competitive, with effect from 6 April 2025.

The current tax regime

The current tax regime is a favourable tax regime allowing UK resident non-doms to elect to be subject to the remittance basis of taxation each tax year. As a result, such individuals are subject to UK tax on their UK source income and gains and only pay UK tax on their foreign income and gains when it is remitted to the UK.

The proposed changes

The proposed changes look to bring in a new four-year foreign income and capital gains regime for new arrivals to the UK following a period of non-UK residence for 10 consecutive years. There will be full tax relief for a four-year period of subsequent UK tax residence on foreign income and capital gains, which can be brought into the UK without incurring a tax charge.

Similarly, existing UK tax residents that have been resident for less than four tax years as of 5 April 2025 are eligible for the new regime until the end of the fourth tax year of UK residence.

For those existing UK resident non-doms affected by the changes who will not qualify for the four-year regime as of 6 April 2025, the government has proposed transitional rules as the reform represents significant changes for many individuals.

Additionally, the changes to the non-dom regime will impact Inheritance Tax (IHT). The details of a new residence-based system for IHT are subject to further consultation although the government has confirmed, to provide certainty, that for those affected the treatment of non-UK assets settled into a Trust by a non-dom settlor prior to April 2025 will not change, so these will not be within the scope of the UK IHT regime.

It is worth noting that the next general election will need to take place before the newly proposed ‘modernised residence-based regime’ is introduced on 6 April 2025 although it appears almost certain that there will be significant changes to the taxation of non-doms regardless of the outcome.

Get In Touch

If you will be affected by the changes above and would like to discuss the changes further including any tax advisory and/or planning options available, please contact us for more information or advice.

Disclaimer - All information in this post was correct at time of writing.