- The existing tax regime that applies to non-UK domiciled individuals is to be abolished with effect from April 2025.
- It will be replaced with a residence-based system which will mean that new arrivers to the UK will be able to claim not to pay tax on their foreign income and gains during their first four tax years of residency, provided they have been non-UK resident for the previous ten tax years. Where a claim is made, personal allowances will be lost.
- Eligible employees will also be able to claim overseas workdays relief in their first three tax years of residency, which provides UK tax relief in respect of employment income received in respect of overseas duties. This relief will no longer rely on the income earned being left offshore, but full details of the eligibility conditions that will have to be met for it to apply have yet to be released.
- Transitional arrangements for current UK resident non-UK domiciled individuals are to include:
- A two year repatriation facility during the 2025/26 band 2026/27 tax years to allow foreign income and gains arising in the tax years up to and including 2024/25 to be remitted to the UK and taxed at a flat 12% tax rate.
- If the remittance basis has been claimed and the individual is neither legally nor deemed UK domiciled by 5 April 2025, there will be an option to rebase the value of foreign capital assets owned personally on 5 April 2019 to their value on that date.
- There will also be a temporary 50% exemption for individuals who were remittance basis users on the taxation of foreign income in the first tax year of the new regime (2025/26). Foreign capital gains in that year will be taxable in full.
- Trust protections are to be abolished. At a high-level, the intention is to tax settlors on both UK and foreign trust income and gains that arise from 6 April 2025 (unless the new four year regime applies), with no further tax on distributions made by the trustees. Pre-6 April 2025 foreign income and gains are to be taxable if matched to trust distributions, which HM Treasury comment could be to settlors or beneficiaries.
- Draft legislation on the income and capital gains tax changes is to be published for comment.
- A consultation will be held on moving to a residence-based inheritance tax (IHT) system. The policy documents released indicate that the new rules may involve charging IHT on worldwide assets after ten years of UK residence and for deemed UK domicile to remain for ten years after leaving the UK.
- Timing: The income and capital gains tax changes will be effective from 6 April 2025. The IHT changes are subject to consultation, but the government would like any new rules to apply from 6 April 2025.
Resources (click to open)
- Domicile: New arrivers regime (Deloitte, 7 March 2024)
- Spring Budget 2024 – 6.2 (March 2024)
- Technical note: Changes to the taxation of non-UK domiciled individuals (HMRC, 7 March 2024)
