The UK government has begun to unveil the details of its plan to phase out the resident non-domicile (non-dom) tax regime, replacing it with a new four-year Foreign Income and Gains (FIG) system starting April 2025. This announcement follows the previous government’s decision in March 2024 to abolish the remittance basis and the concept of domicile. On 29 July 2024, Chancellor Rachel Reeves further detailed that inheritance tax (IHT) protections for trusts established by non-doms will also be terminated.
Under the new guidelines, the basis for determining IHT liability on non-UK assets will transition to a residency-based regime. The critical criterion will be whether an individual has been a UK resident for ten years preceding the tax year in which a chargeable event, such as death, occurs. Additionally, individuals will remain within the IHT scope for ten years post-departure from the UK.
Starting from the 2025/26 tax year, those who have not been UK residents for the preceding ten years will qualify for the new FIG regime. This allows eligible individuals to remit foreign income and gains to the UK tax-free for up to four years. Alongside this, the protected trust regime will be abolished from 6 April 2025 for those who do not qualify for the FIG regime, making settlors liable for income tax and capital gains tax on trust incomes and gains.
Transitional provisions previously announced will continue, excluding a one-year 50% tax reduction on foreign income for those in the UK less than 15 years. The temporary repatriation facility (TRF) will be maintained, though its specific rate will only be disclosed in the forthcoming Budget announcement on 30 October 2024.
The government also plans to review complex anti-avoidance legislation related to offshore trusts, but no changes will be made until at least 6 April 2026. As for the inheritance tax policy details, the government has opted against an open consultation, instead inviting stakeholders to engage in discussions through summer 2024, culminating in a series of sessions scheduled from 12 to 23 August.
In response, STEP has submitted suggestions urging the government to maintain fairness and consistency with the existing rules. They highlight the potential adverse effects on individuals’ decisions regarding residency in the UK and suggest that trusts established before the regime change in 2025 retain their excluded property status to mitigate unexpected tax liabilities.
Oxford Economics is conducting a survey among advisors with non-dom clients to gauge reactions to the impending tax reforms. This research aims to inform a comprehensive report for HM Treasury to consider during the policy implementation phase.
These sweeping changes signal a significant shift in the UK’s approach to managing foreign income and gains, aligning more closely with global standards and potentially impacting the decisions of wealthy internationals considering residency in the UK.
