Spring Budget 2024: Non-UK domiciled individuals
A change in direction
In light of the Spring Budget (6 March 2024) non-UK domicile tax rules will be replaced with a residence-based regime. Updates and comments on the changes will be held within this article. Should you have any questions regarding details within this article, use the form below to contact one of our experts.
[Article updated 7 March 2024.]
What is the difference between domicile and residency?
Domicile has been an intrinsic part of the UK tax legislation for hundreds of years.
Domicile is a concept established in common law which is used in the UK tax system. Every person has a domicile at birth/ of their origin, this then can change due to dependency and choice – but ultimately is where a person sees their home, where their family and economic ties are and where they will return in the future. It is distinct from residency, nationality and citizenship.
Residency in the UK is determined by how many midnights a person is in the UK and specific circumstances under the UK Statutory Residency Test (SRT).
Spring Budget 2024 Announcement
The Spring 2024 budget announcement seems to suggest that domicile is no longer material for UK tax purposes, but instead residency is how individuals will determine if they are subject to UK taxation from 6 April 2025.
From 6 April 2025 a 4-year grace period will be given to all individuals (irrespective of this domicile) if they wish to claim it, who have not been UK resident in the prior 10 years and become UK resident, meaning they will only be assessable on UK income and gains and not foreign income and gains. This has been currently called the 4-year FIG (foreign income and gains) regime.
In addition, under the 4-year FIG regime individuals will be able to remit any offshore income and gains during this period to the UK, free from any additional charges.
Furthermore, individuals will now not be required to operate segregated accounts (i.e. income and gains) or trace the movement of the foreign funds and can remit/ enjoy the funds in the UK without scrutiny.
Similar to remittance basis claims, the new residency 4-year regime will need to be made each year for it to apply and can be made one year and not the next.
Transitional rules for those already in the UK
Less than 4 years UK resident
Individuals (both UK dom and non-domiciled) who on 6 April 2025 have been tax resident in the UK for less than 4 years (after a period of 10 years non-UK tax residence) will be able to use this new regime for any tax year of UK residency in the remainder of those 4 years.
For example, if you arrived in 2023/2024 (before 5 April 2024) and were non-UK resident for 10 years before this date. You can claim FIG for the following 2 years for 2025/2026, 2026/2027 (being years 3 and 4 of UK residency)
UK resident for 4 years or longer as a non-dom
These individuals who previously were able to claim the remittance basis will now be subject to the arising basis from 6 April 2025.
Income tax
As the changes of Spring 2024 were unexpected many individuals may have planned their affairs in a way of anticipating the remittance basis going forward. Therefore, if a non-domiciled individual is moving from the remittance basis for one year only, 2025-2026, they will only pay tax on 50% of their foreign income as it arises in that year, this does not apply to any foreign gains.
For 2026-27 onwards, tax will be due on all worldwide income and gains as it arises.
Capital gains tax
Similar to rebasing that non-domiciled individuals had in 2017, a non-UK domiciled individual who has claimed the remittance basis prior to 5 April 2025 can elect to rebase any foreign asset that they held personally as at 5 April 2019. This effectively means future gains – post 6 April 2026 – will ignore unrealised gains up to 5 April 2019 which could present substantial savings.
Future remittances to the UK
The remittance basis of taxation will be abolished for UK resident non-domiciled individuals from 6 April 2025. The last year for which a remittance basis claim can be made will be the 2024-25 tax year.
What about remitting funds to the UK which arose prior to 6 April 2025 under the old non-dom rules?
Well, individuals who have been taxed on the remittance basis prior will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 income or gains to the UK. This reduced rate will only be available for remittances made in the first two years 2025/2026 and 2026/2027 under the new Temporary Repatriation Facility (TRF).
This beneficial rate (TRF) will not apply to pre-6 April 2025 FIG generated within trusts and trust structures.
From the tax year 2027-28 remittances of pre-6 April 2025 FIG will be taxed at normal tax rates.
What about BIR?
Business Investment Relief will be available for qualifying investments of pre-6 April 2025 foreign income and gains made on or after 6 April 2025 and will continue to be available for qualifying investments made prior to 6 April 2025.
What about Overseas Workday Relief (OWR)?
Currently, UK-resident, non-UK domiciled individuals who claim the remittance basis and perform some employment duties outside of UK are taxed on remittance basis on these earnings if not brought to UK. If the individual is non-UK resident in 3 previous tax years, they have the first 3 tax years of UK residence to be able to claim relief. This is usually done on a just and reasonable apportionment of UK workdays versus non-UK workdays.
Currently, national insurance contributions (NICs) are not relieved and payable as normal.
Overseas Workdays Relief will continue to be available for the first 3 tax years of residence if the individual uses the 4-year FIG scheme. The new OWR provides relief from income tax whether the earnings are brought to the UK or not.
As under the existing rules, OWR will not provide relief from NICs.
Inheritance tax (IHT)
Inheritance tax (IHT) has for years in the UK been on a concept of domicile. However, how these new Spring Budget announcements will interact will be key. The government, we understand, intends to move IHT to a similar residence-based system, subject to consultation.
Non-UK resident trusts
Another impact of the new 4-year FIG regime is that it is anticipated that from 6 April 2025, the protection from taxation on future income and gains as it arises within trust structures (whenever established) will be removed for all individuals who do not qualify for the new UK 4-year residency regime.
Foreign income / gains arising in non-resident trust structures from 6 April 2025 will be taxed on the settlor or transferor (if they have been UK resident for more than 4 tax years) on the arising basis. This is the same basis on which trust income and gains are taxed on UK domiciled settlors or transferors under the current regime.
Foreign income / gains which arose in the trust or trust structure before 6 April 2025 will be taxed on settlors or beneficiaries if they are matched to worldwide trust distributions and we are awaiting further guidance on this from HMRC in the next few months.
What to do?
As a non-UK-domiciled individual you should seek professional tax advice as these rules are likely to impact you
If you have recently returned to the UK, please seek professional tax advice as these new rules could also apply to you.
Summary of implications of the new 4-year FIG rules
| Existing Regime (up to 5 April 2025) | New Regime (from 6 April 2025) | |
| Who: | ||
| UK Resident and UK Domiciled individuals | Taxed on their worldwide income and gains as they arise. | UK domiciled individuals that have been non-UK resident for the previous 10 years and have become UK resident can elect to be taxed under new regime. |
| Non-UK resident individuals (applies to UK-Domiciled or non-UK domiciled) | Taxed on their UK source income and certain gains as they arise.
Not taxable on foreign income and gains. |
No change
|
| UK resident & UK domiciled with less than 4 years of UK residency | Taxed on their worldwide income and gains as they arise | An election can apply to be taxed under– 4 year FIG regime which means only UK income and gains are taxable. Foreign income and gains are not taxable in the UK and can be remitted to the UK.
|
| UK resident with less than 4 years of UK residency, non- UK domiciled
|
Have the option to make a claim for the remittance basis of taxation and only be taxed on UK income and gains, and foreign income and gains to the extent remitted to the UK
|
An election can apply to be taxed under– 4 year FIG regime which means only UK income and gains are taxable.
Foreign income and gains are not taxable in the UK and can be remitted to the UK.
|
| More than 4 years UK tax resident and non-UK domiciled | Prior to 5 April 2025 could claim remittance basis, though subject to Remittance Basis Charge if UK resident for 7 out of last 9 tax years.
|
Now on-domiciled individuals will be subject to UK income and capital gains tax as it arises, with some limited benefits:
Income tax Capital gains
|
| Temporary Repatriation Facility (TRF) | Currently, if unremitted income/gains from prior years where remittance basis was claimed are subsequently brought to UK, they are taxed at normal tax rates 20/40/45%. | If formerly unremitted income/gains brought to UK between 6 April 2025 – 5 April 2027 and the income/gains arose in year that remittance basis was claimed, they are taxed at attractive 12% rate. |
The key differences between a remittance basis claim and the new 4-year FIG regime
| Do I need to make a claim? | A claim for the remittance basis needs to have been made in writing to HMRC.
The remittance basis can apply one year and not the next. |
A claim for the 4 year FIG will need to be made in writing to HMRC.
A claim for the 4-year FIG can apply one year and not the next, but it needs to be in the 4 year period of UK residency.
|
| Time limits | A remittance basis claim is available to any non-dom, but charges apply after numerous years of UK residency:
· UK resident for 7 out of the previous 9 tax years, prior to the year in question: £30,000. · UK resident for 12 out of the previous 14 tax years, £60,000.
If UK res for 15 out of last 20 tax years, deemed domicile so cannot claim remittance basis. |
A FIG claim is available for first four years of UK residency.
If an individual became UK-resident prior to 6 April 2025, they can use remainder of 4 years for a 4 year FIG claim.
They must have been non-UK res for 10 years prior to becoming UK tax resident |
| Loss of UK allowances | If remittance basis is claimed, no personal allowance is available against income, nor annual exempt amount available against capital gains tax. | If FIG regime is claimed, no personal allowance is available against income, nor annual exempt amount available against capital gains tax.
|
| De minimis? | Automatic remittance basis applies for individuals with unremitted foreign income and gains of less than £2,000 a year. No loss of allowances and tax return not required. | There is no de minimis for the 4-year FIG regime. |
| Other | ||
| Inheritance Tax | UK domiciled individuals liable to IHT on worldwide assets.
Non-UK domiciled individuals only liable to IHT on UK assets |
Subject to consultation but intend to move to a residence-based system like income tax and capital gains tax. |
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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