On 6 March 2024, the government has announced the end of the current tax rules for non-UK domiciled individuals ("non-doms") from 6 April 2025. This reform abolishes the remittance basis of taxation for non-doms, replacing it with a new residence-based regime.

Before April 2025, the UK general election could lead to changes affecting the proposed rules. Meanwhile, it might be advantageous to explore potential strategies you could implement in anticipation of the new rules and future developments.

Current rules 

Non-doms are individuals whose permanent home, or domicile, is considered to be outside the UK. The current rules permit non-doms who are UK resident to use the remittance basis of taxation so whilst tax is paid on UK income and gains, they pay tax on foreign income and gains only if and when remitted, or brought to, the UK.

Overview of new rules

Individuals who have a period of 10 consecutive years of non-residence prior to arriving in the UK will have full 100 per cent tax relief for a 4-year period (once UK tax resident) on foreign income and gains, which can however be brought to the UK without additional tax charges.

Under the new system, therefore, regardless of where an individual is domiciled, and after transitional arrangements, anyone who has been tax resident in the UK for more than 4 years will pay UK tax on any newly arising foreign income and gains, as is the case for all other UK residents.

UK tax resident individuals who have been resident for less than 4 tax years as at 6 April 2025 and are eligible for the scheme, will also benefit from the relief until their 4th year of tax residence ends.

The Overseas Workday Relief, which broadly exempts from UK tax earnings from overseas employment duties, during their first 3 years of UK tax residence, will continue to apply from 6 April 2025 but will be subject to simplification.

Transitional arrangements

The transitional arrangements for existing non-doms will include:

• A 50% reduction in foreign income subject to tax in the 2025/26 tax year for those who will have been resident in the UK for at least 4 years as at 6 April 2025.
• Re-basing of capital assets to 5 April 2019 levels for disposals that take place from 6 April 2025 for current non-doms who have claimed the remittance basis. This means that when foreign assets are disposed of, affected individuals can select to be taxed only on capital gains since that date.
• Foreign income and gains arising prior to 6 April 2025 can be remitted from this date at a reduced rate of 12% for 2 years (tax years 2025/26 and 2026/27).
• Settlors of protected settlements will become subject to UK tax on the settlement's foreign income and gains arising from 6 April 2025 if the settlement is a "settlor interested trust".

Inheritance tax and the new rules

Liability to inheritance tax (IHT) partly depends on an individual's domicile status. UK IHT is not currently due on non-UK assets of non-doms until UK resident for 15 out of the preceding 20 tax years. However, in light of today's announcement, we still await further news as to how IHT will move to a residence-based regime.

That said, the government has so far indicated that:

• Individuals will become liable to UK IHT on their worldwide assets once UK tax resident for 10 years (i.e. a 10-year nose).
• Individuals will no longer be liable to UK IHT on their worldwide assets once non-UK tax resident for 10 years (i.e. a 10-year tail).

That said, the government has noted that this is subject consultation in which further criteria will be considered such as connecting factors.

Round up

Whilst some will consider the abolition of the non-dom tax status to be a great simplification of the tax system, complexities as well as opportunities will nonetheless be encountered as we get to grips with both the transitional and new rules on behalf of our clients.

As the dust begins to settle, at Statura we will keep monitoring further developments and we are ready to assist you with tackling these changes.