Major shake-up of taxation for non-domiciled individuals (non-doms)
Whist the Chancellor claimed inspiration from Nigel Lawson’s announcements of 1988, some would view this as a reaction to Labour’s well publicised criticism of certain tax advantages available only to non-doms.
What is a non-dom?
A non-dom is an individual who has, for now, made their home in the UK, but was originally born outside the UK, and generally of non-dom parents. The current rules mean that non-doms have the opportunity not to pay any UK tax on income and gains that are generated overseas, unless they bring it to the UK (the ’remittance basis’ of taxation). Further, no inheritance tax is due on the death of a non-dom, on savings, investments, property and other assets that are not within the UK.
What will change?
From 6 April 2025 the current legislation will be abolished and replaced with a whole new set of rules.
The taxation provisions will be based on historic tax residency, such that new arrivals, (those who have not been resident for the ten previous consecutive years) will enjoy four years of exemption from UK taxes on foreign income, during which time, those amounts may be brought into the UK tax free.
After that, they will be taxed in full on all worldwide income and gains, on an arising basis, in line with any other UK tax resident individual.
A consultation will be released on how inheritance tax will be charged under a residency-based regime.
Are there any transitional arrangements?
From the start date of 6 April 2025, current non-doms will lose access to the remittance basis, representing a significant and unexpected change. Consequently, for 2025/26 only, there will be reduction in taxation on foreign income and gains of 50%.
For those who have previously claimed the remittance basis, there will be the opportunity to rebase assets, as at 5 April 2019. This means that when assets are sold in the future, only the gain in value from 5 April 2019 to the date of sale will be taxable. Further, there will be a temporary repatriation facility lasting from 6 April 2025 to 5 April 2027, where overseas income and gains arising before the new measures come into force, may be remitted at a tax rate of 12%.
Overseas workday relief (OWR)
OWR currently allows a temporary non-dom worker, posted to the UK, to enjoy the remittance basis of taxation for a limited period of three years.
OWR will continue in a revised form, although in some circumstances the new four-year rule may be more favourable.
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