These changes are poised to impact individuals with non-UK income or assets, including employees, trustees, and new arrivals. There is a fundamental move away from a domicile and remittance basis approach, with the introduction of a residence-based regime and 4 year foreign income and gain exemption.
Key Changes to Non-Dom Taxation?
Long Term Resident (“LTR”) – From 6 April 2025, the concept of domicile will be removed and replaced with the concept of LTR. An individual will be a LTR where they have been UK tax resident for at least 10 out of the previous 20 tax years immediately preceding the tax year of the changeable event in question. Once a LTR, the worldwide assets of an individual will form part of their inheritance tax estate. There will be an inheritance tax of up to 10 years, where a LTR ceases to be UK tax resident.
4-Year Foreign Income and Gains (“4-Year FIG”) regime – This new regime will be available for four years starting from 6 April 2025 or the first tax year in which the individual becomes UK resident, if later. It will be available to any individuals who have been non-UK resident for at least the previous ten tax years. Where a successfully claim is made, foreign income and gains are exempt from UK tax (even where brought to the UK).
Non-UK Trusts – The protected settlement provisions which prevented foreign income and gains arising within settlor interested trusts from being attributed to UK tax resident settlors will cease to apply from 6 April 2025. This will significantly change the annual UK tax position for UK tax resident settlors. Furthermore, where the settlor is a LTR, the assets of the trust will be considered relevant property for inheritance tax purposes. Thus bringing the assets within the scope of 10 yearly charges and exit charges. There is a transitional provision, which in many cases should prevent the relevant property of the trust falling within the gift with reservation of benefit (“GWR”) provisions, provided no UK situated assets held.
Temporary repatriation facility (“TRF”) – This is a temporary facility which will be available for the tax years 2025/26, 2026/27 and 2027/28. Very broadly, it will allow individuals who have previously claimed the remittance basis of taxation to designated foreign income and gains sheltered by the remittance basis and pay a TRF charge at the rate of 12% (increasing to 15% in 2027/28). No further charge arises if the funds are subsequently remitted. The TRF amounts are treated as being net of foreign tax (i.e. no further relief). The facility can also apply to benefits and capital payments received by UK tax resident beneficiaries that are matched to relevant income and stockpiled gains which arose before 6 April 2026.
Rebasing – A capital gains tax rebasing of non-UK sited assets will be available to those who have historically claimed the remittance basis for any tax from 2017/18 onwards but cannot benefit from the four-year FIG regime. Assets will be rebased to their market value as at 5 April 2017.
Overseas workday relief (“OWR”) – Will remain and will apply for the same 4 year period as the FIG regime. However, it will be subject to an annual financial limit and it will not be available for individuals who have already completed 3 years of residence prior to April 2025.
How Should You Prepare?
It will be important for both individuals and trustees who are affected by these changes to think about the following:
When are the relevant individuals going to be considered LTR?
How will their UK tax exposure change from 6 April 2025?
How should their investments be structured going forward?
Do they require all of their assets / sources of income?
Can they take advantage of the TRF?
Is the settlor and their spouse comfortable will being excluded from benefiting from a trust?
Do relevant individuals have appropriate levels of life insurance cover in place?
Are individuals considering a departure from the UK?
Conclusion
The changes are very significant and wide ranging. Professional advice should be sought to understand the change in tax exposure and to plan to mitigate future tax exposure, where possible.