New Tax Regime for Non-Doms confirmed

• The default position from 6 April 2025 will be that individuals will be chargeable to tax on their worldwide income and capital gains as they arise.
• The remittance basis will continue to apply only to tax FIG that arose in years prior to 2025/26 in which the remittance basis was claimed and is remitted to the UK after 5 April 2025.
• Individuals (including those who are UK domiciled) who have not been UK resident for at least 10 years prior to their arrival will not be chargeable to UK tax on their FIG arising during their first four years of UK tax residence, regardless of whether or not any of the FIGs are remitted to the UK.
• Individuals who have already become UK resident before 6 April 2025 will qualify for the FIG regime for any year after 5 April 2025 that falls within their first four years of residence. For example, somebody who first becomes UK resident in 2023/24 would qualify for the FIG regime for 2025/26 and 2026/27, being their third and fourth year of residence.
• A claim for the FIG regime to apply for a year must be made via the Self-Assessment tax return for that year, and the return must also quantify the FIG to which the claim applies.
• A claim can be made for either income or gains, or both, on a source-by-source basis. It is not necessary to claim relief for all foreign income and/or all foreign gains. A claim can also be made independently for Overseas Workday Relief purposes (see below).
• A claim will result in the loss of the income tax personal allowance and CGT annual exemption for the year of claim. Foreign income losses and foreign capital losses of the year of claim will also not be allowable.

The FIG regime represents an attractive-short term benefit for new arrivals but the four year period does not compare favourably with the duration of similar schemes on offer from other jurisdictions.

The requirement to identify and report in annual tax returns the FIGs not chargeable to tax is an unwelcome administrative burden. It will also provide HMRC with significantly more detail of individuals’ offshore assets and investments than what is currently available under the remittance basis regime.

Planning considerations

• Consider delaying arrival until early 2025/26 to maximise the four-year FIG period.
• Keep investments offshore to maximise the FIG exempt from tax.
• Existing non-doms moving on to the arising basis from 6 April 2025 could consider the use of UK structures such as family investment companies to hold wealth, or tax wrappers such as offshore investment bonds to roll-up income and gains.

• The new TRF is aimed at encouraging individuals to remit to the UK FIGs that arose in years prior to 2025/26 where the remittance basis was claimed.
• The original Conservative proposal was for a FIG period of two years. This will be extended to three years from 6 April 2025.
• Individuals can ‘designate’ and pay tax on FIGs of earlier years in their Self Assessment tax returns for 2025/26, 2026/27 and 2027/28. Those FIGs can then be remitted to the UK in the year of designation or at a later time with no further charge to tax.
• The reduced rates of tax applying to designated income and gains are 12% for both 2025/26 and 2026/27, and 15% for 2027/28.
• It will be possible to designate and pay tax at these reduced rates on all or a proportion of a source of mixed funds including FIGs, even where it is not possible to accurately analyse the source of the funds.
• It will also be possible to designate and pay tax on illiquid assets (for example an investment purchased with FIGs).
• Special mixed fund matching rules will apply to ensure that any designated amount in a mixed fund will be treated as being remitted first in preference to other amounts in the fund.

The TRF represents a welcome transitional relief for those non-doms who have previously claimed the remittance basis and do not qualify for the FIG regime - particularly those who may be running low on clean capital.

It will work differently than most advisers had originally anticipated. Instead of just remitting pre-6 April 2025 FIGs in one of the three years to 2027/28 and paying the reduced amount of tax for that year, it is instead necessary to designate and pay tax at the reduced rate on amounts to remit, which can then be remitted at any time as required. This offers a certain amount of flexibility, both in terms of spreading the tax cost over the three TRF years and the ability to take advantage of the lower rates of tax on sums intended to be remitted after 5 April 2028.

Planning considerations

• Where the remittance basis has not previously been claimed, a claim in 2024/25 (or earlier years if appropriate) will ensure eligible for the TRF.
• Advance receipt of FIG by 5 April 2025 to designate and remit under the TRF.
• Consider operating a separate ‘TRF’ account offshore to hold designated and tax-paid funds available for future remittance. Alternatively, these could be added to an existing ‘clean capital’ account.

• Current and previous remittance basis users who are not UK domiciled or deemed domiciled can rebase foreign assets held personally on 5 April 2017 to their market value at that date in calculating capital gains arising on disposals after 5 April 2025.
• Those long-term UK residents who became deemed domiciled on 5 April 2017 under the new rules taking effect from that date have already been able to rebase personally held assets at 5 April 2017. They will remain eligible to rebase provided they remain not-UK domiciled for common law purposes on 5 April 2025.

It appears that 5 April 2017 has been selected to align with the rebasing date for those who became deemed domiciled at that date. However, as the rebasing facility will only be available for assets that have been held for at least eight years at 6 April 2025, it will be of relatively limited application.

Planning considerations

• Defer sales of assets held at 5 April 2017 to take advantage of rebasing.

• The existing trust protections will no longer apply after 5 April 2025 to all current and new trusts.
• As a result, a settlor retaining an interest in a trust will generally be chargeable tax on all income and gains arising in the trust.
• However, where the settlor qualifies and makes a claim, the FIG regime will apply to FIGs of the trust for the first four years of the settlor’s UK residence.
• Where a beneficiary qualifies, the FIG regime will also apply to income and capital distributions to or benefits received by that beneficiary.
• The TRF will extend to capital payments to UK resident beneficiaries from an offshore trust that match to pre-6 April 2025 FIG of the trust.
• The existing income tax and IHT ‘motive defences’ (that broadly apply where a trust was not set up with any UK tax avoidance motive) will continue to apply, but are subject to review and may possibly be restricted or removed with effect from 6 April 2026.

Despite lobbying over the summer months, it was always unlikely that the existing trust protections would survive a change of government.

Planning considerations

• Consider excluding the settlor and other individuals from benefit.
• An existing trust could settle a new trust and exclude the settlor and other individuals from benefit from the new trust to reduce exposure to tax on the settlor.
• Consider the use of tax wrappers such as offshore investment bonds to roll-up trust income and gains.
• Make distributions in advance of 6 April 2025 to remittance basis users who can remit under the TRF.
• Consider whether the motive defences will apply to exempt trust income and capital gains from UK tax, at least for 2025/26. 

• From 6 April 2025, exposure to IHT on non-UK assets will be determined by whether individuals are ‘long-term resident’ at the time of the chargeable event (including death).
• The new regime looks at the 20 tax years immediately prior to the year of the chargeable event, and if individuals have been UK resident for at least 10 of those 20 years they will be treated as long term resident.
• When individuals leave the UK, the IHT tail (the period for which IHT will continue to apply to non-UK assets) will depend on how many of the 20 years prior to the year of departure have been years of UK residence. For 10 to 13 years of residence, the tail will be 3 years, increasing by one year for each additional year of residence to a maximum tail of 10 years for a full 20 years of residence.
• For example, somebody who has been resident for 15 of the previous 20 years will have a five-year tail.
• For individuals who are 20 years old or younger, the test for long term residence is whether they have been UK resident for at least 50% of the tax years since their birth.

The original proposals mentioned only 10 years of residence with a 10-year tail, so the rather more nuanced approach to be introduced offers some welcome flexibility. However, it still brings non-UK assets into charge to IHT at a much earlier stage than under the existing non-dom regime (after 10 years rather than 15) and generally gives a longer tail.

Individuals who have left the UK permanently will have certainty that their non-UK assets will be outside the scope of IHT on expiry of the tail, which is often not the case under the current domicile test.

How easy will it be for HMRC to monitor continuing liability to IHT for individuals who have left the UK permanently – particularly those with a long tail?

Planning considerations

• Non-doms who have been UK resident for fewer than 15 years who leave the UK before 6 April 2025 will have no exposure to IHT and no IHT tail in respect of their non-UK assets.
• Deemed doms leaving the UK before 6 April 2025 will have only a three-year IHT tail. The tail would be at least five years under the new rules.
• Accelerate gifting of assets if appropriate to minimise IHT exposure.
• Non-long-term residents should remit under the TRF only what is required, as remitted funds will fall within the scope of IHT.
• Consider whether the UK’s IHT double taxation agreements will shelter non-UK assets from IHT.

• Despite intensive lobbying over the summer months, the current IHT protection for non-UK assets held in existing offshore trusts will not last beyond 5 April 2025.
• Exposure to IHT on non-UK assets held in trust will now follow the long-term resident status of the settlor. Whilst the settlor is long-term resident (and for the period of the tail) any non-UK assets of the trust will be treated as relevant property for IHT purposes.
• The trust will therefore become subject to a charge (of up to 6%) under the relevant property regime on each 10-year anniversary of its formation, and an exit charge on each occasion of relevant property leaving the trust (including at the end of the tail, when the non-UK assets will cease to be relevant property).
• Where the settlor has died before 6 April 2025, the exposure of non-UK property within the trust will be determined using the existing test – the settlor’s domicile at the time the property became comprised in the trust.
• For new trusts settled after 30 October 2024, where the settlor retains an interest in the trust and is a long-term resident at their death the existing ‘gift with reservation of benefit’ (GWROB) rules will apply to treat all trust asset as remaining within the taxable estate of the settlor for IHT purposes.
• The GWROB rules will not apply to non-UK assets of trusts settled and funded by 30 October 2024. They will however apply to any assets subsequently added to those trusts.

Again, the loss of IHT trust protections was always unlikely to survive the change of government, although the exclusion of existing trusts from the double-taxation resulting from the GWROB rules is a small crumb of comfort. The application of the excluded property rules to tax 10-year anniversaries and exits will require careful monitoring and adds a further layer of compliance. However, older settlors may think that one or possibly two 10-year charges at a maximum of 6% is a price worth paying to avoid IHT at 40% on death.

Planning considerations

• Review and monitor long-term residence status of settlors.
• Accelerate distributions to beneficiaries to minimise the value of non-UK assets becoming relevant property from 6 April 2025.
• Settling non-UK assets on a family trust from which the settlor is excluded from benefit before the settlor becomes long-term resident will shelter those assets from IHT on the settlor’s death. However, the trust would become subject to the relevant property regime when the settlor becomes long-term resident.

• OWR is currently available to UK resident non-domiciled employees for the year of arrival in the UK and the following two years. Employment income relating to overseas workdays is not chargeable to UK tax if paid offshore and not remitted to the UK.
• From 6 April 2025 eligibility to OWR will follow eligibility to the FIG regime (and will therefore apply for the year of arrival and the following three years).
• An OWR claim will be required under the FIG regime, resulting in the loss of the income tax personal allowance and CGT annual exemption for the year of claim. Foreign income losses and foreign capital losses of the year of claim will also not be allowable.
• There will be no requirement for the earnings relating to overseas workdays to be paid and retained offshore. These can be paid direct to a UK account and will be exempt from tax under the FIG regime.
• OWR will however be capped annually at the lower of 30% of the employee’s worldwide earnings or £300,000.

The alignment of OWR with the FIG regime is sensible and extends eligibility for the relief for a further year. The simplification of the operation of the relief is also welcome, as is the ability to receive the earnings relating to overseas workdays in the UK with no liability to tax. However, we can see no good reason why the relief should be capped annually.

Planning Considerations

• Where it is possible to control the date of commencement of the UK employment, consider delaying this until early 2025/26 to maximise 4-year FIG period.