Abolition of the non-dom regime - Where are we now?

In their spring Budget in March 2024, the Conservative government proposed some significant changes to the existing long-standing regime for taxing non-UK domiciled individuals (non-doms) intended to take effect from 6th April 2025. Read our earlier article, ‘Abolition of non-dom regime’.

We have since had a change of government but as expected, the new government has confirmed on 29 July that it will largely implement the changes proposed in the spring Budget with effect from 6 April 2025, but with certain changes to remove “several advantages for existing non-doms”. While this paper confirms certain points, it also adds further uncertainty in some areas!

In this article we look at what we now know about the likely non-dom changes to be introduced next April and suggest some planning points for consideration pending further detail on the changes being published.

As well as confirming the government’s intention to implement the changes to the non-dom regime, the Paper published on 29 July also indicates the following:

• it will not proceed with the 50% reduction in foreign income subject to tax in 2025/26 for those who lose access to the remittance basis on 6 April 2025 and are not eligible for the new Foreign Income and Gains (FIG) regime
• while for Capital Gains Tax purposes current and past remittance basis users will be able to rebase foreign assets to their value at a specific date, this will not necessarily be 5 April 2019. The government is considering what rebasing date will be appropriate and will confirm this in the Budget on 30 October
• a hint at a possible extension to the originally proposed temporary repatriation facility (TRF) “to make use as attractive as possible”, but with no further detail as to the length of the period or rate(s) of tax
• a possible expansion of the TRF to include stockpiled income and gains within overseas structures
• a form of Overseas Workday Relief will be retained, with further details to be confirmed in the Budget on 30 October
• the previously announced formal consultation on the Inheritance Tax changes (IHT) for individuals will not now take place. The basic framework of exposure to IHT if a person has been resident in the UK for the previous 10 years, with the person remaining within the scope of IHT for 10 years after losing UK residence looks likely to be implemented, but the government “will engage further with stakeholders on the operation of the new test, so that any refinements can be considered fully”
• confirmation of the removal of the existing IHT exemption for non-UK assets settled into a Trust by a non-UK domiciled settlor. There may be transitional arrangements for existing Trusts. Further details on the extent of the new rules and transitional arrangements will be published in the Budget on 30 October
• a review of offshore anti avoidance legislation including the transfer of assets abroad legislation and settlements legislation will be undertaken with the intention being to remove ambiguity, simplify their application in practice and ensure that they are effective. Any changes following this review are not expected to be effective until 2026/27.

It seems that we will need to wait until at least 30 October for further details on much of the above, and for the publication of draft legislation for complete clarity. This leaves a relatively small window for those affected to plan for the changes, but we would not advocate implementing any planning based on the limited information currently available.

As with any tax law the devil is in the detail. However, we would certainly recommend that clients consider the implications of the proposed changes based on what we now know and consider what solutions may be appropriate, so they are ready to act when the legislation is published.

Possible planning options

Those coming to the UK

• Manage day counts by reference to the Statutory Residence Test to avoid becoming UK resident at all.
• Delay arrival until after 5 April 2025 to maximise the 4-year FIG period.
• Relocate to the UK as early as possible in the year of arrival, to maximise the FIG period in that year.
• Keep investments offshore for the first four years of residence, so any income and capital gains are foreign source and qualify for the FIG regime.

Current remittance basis users

• Advance the realisation of foreign income and gains in the current year (ending 5 April 2025) and claim remittance basis to shelter these from UK tax.
• Defer remittances in the current year until after 5 April 2025 to take advantage of the TRF at a lower tax cost.
• If funds are remitted under the TRF, consider the use of a Family Investment Company to hold investments, so Corporation Tax rates apply.
• Operate separate accounts to avoid mixing pre-and post-April 2025 income and capital gains.
• Consider whether deferring disposing of assets held on the rebasing date the government decides until after 5 April 2025 might be appropriate, to take advantage of rebasing of those assets to their value on that date, thus reducing the level of gains or generating losses.

Resident fewer than 10 years

• Lose UK tax residence before 10 years of UK tax residence to avoid IHT on foreign assets while resident and to avoid the 10-year IHT tail applying after losing UK residence.

Long-term residents (15+ years) who are deemed domiciled

• Defer remittances in the current year until after 5 April 2025 to be able to take advantage of the TRF.

Long-term non-residents

• Individuals (including UK doms) who have not been resident in the UK for at least 10 years can resume residence after 5 April 2025 and take advantage of the four-year FIG regime.

Existing settlor-interested Trusts

• Consider excluding the settlor (and spouse) from benefit to avoid the attribution of Trust income and gains to the settlor from 6 April 2025.
• If the settlor still requires access to Trust funds, consider whether the existing Trust can settle a new Trust out of the existing Trust fund, and excluding the settlor (and spouse) from benefitting from one of the Trusts.
• Consider the investment strategy and the use of offshore bonds or other such investment wrappers to minimise any attribution of Trust income and gains to the settlor.
• Distribute income and gains to non-domiciled remittance basis user beneficiaries by 5 April 2025. These can remain offshore tax-free or remitted to the UK at a lower tax cost after that date using the TRF.

Should I settle a new Trust before 6 April 2025?

• We await confirmation of the new rules to be published at the 30 October Budget, but a new Trust is unlikely to be effective as an IHT shelter for non-UK situs assets held in the Trust.
• If the Trust is settlor-interested, Trust income and gains will be attributed to and taxed on the settlor after 4 years of UK tax residence.
• However, a newly UK resident settlor would be able to take advantage of the FIG regime to avoid UK tax on Trust income and gains attributable to him in his first four years of residence.

We will continue to monitor and update clients on any further information and its potential implications as and when this becomes available. In the meantime, to discuss any of the above in more detail please contact Jennifer McNally or your usual Crowe contact.