Give us your details and we’ll be in touch asap

Insights

All Articles

Business Services

Business Tax

Personal tax

Probate and Inheritance Tax

VAT

Business Services  •  Personal tax

What tax changes are in store for ‘non doms’?

By RJP LLP on 18 March 2024

‘Non doms’ - people who are resident in the UK but classified as non-UK domiciled for tax purposes (officially known as RNDs), have historically been eligible for special tax treatment. The government has always argued that this policy, whilst regarded by some as unfair, benefits the Treasury because it attracts wealthy individuals with high disposable income into the country.

How are UK ‘non doms’ taxed?

Non doms benefit by paying UK tax on income and gains that arise outside the UK only when the money is brought into the UK – the ‘remittance’ basis of assessment. They pay UK tax on income and gains arising in the UK just like everyone else.

This tax policy has been controversial for a long time and in the 2024 Spring Budget Jeremy Hunt announced the existing favourable regime for non doms would be abolished. It is intended to be replaced with another scheme, which is based on length of UK residency. This article explains how the new non dom scheme is intended to operate. The legislation will need to be written into the Finance Act, however it is unlikely to face opposition, because the abolition of what is perceived as preferential treatment for non doms was originally a key Labour policy. Even if the Conservative party does not win the next General Election, it is anticipated that this policy will become law.

How does the new non dom tax policy work?

The current non-dom regime is a remittance-based scheme focusing on money that is brought into the UK. Those individuals who are eligible for this remittance basis of assessment are sheltered from paying tax in the UK on non-UK income and gains, but they do pay UK tax on UK generated income and gains.

The remittance basis can apply for 15 consecutive years of UK residence, after which the individual is no longer eligible.

After a non dom has been UK resident for 7 tax years, payment must be made for the privilege of using the remittance basis of assessment, however the new regime will be strictly time limited.

The new rules will focus on a four-year UK residence regime and enable those who are eligible to bring non-UK income and gains into the UK with no UK tax liability for their first four years of UK residence. Once they have been UK resident for four years, they will be subject to UK tax on worldwide income and gains on the same basis as other UK resident individuals.

Individuals can qualify for the new regime if they have been non-UK tax resident for at least 10 consecutive years, regardless of their domicile status. The new regime will apply for their first four tax years of UK residence which means it could be available to individuals who have previously been UK resident.

How will assets in trust be taxed for non doms?

Many non doms also hold assets on trust to shelter income and gains from UK tax. From 6 April 2024, the protected settlement status they currently benefit from is being removed. Instead they will have the same four year sheltered period as individuals, after which tax will be payable on worldwide assets.

These changes represent significant changes for non doms and so there will be transitional arrangements in place as follows:

50% reduction to tax on foreign income for one year

Any non doms who won’t qualify for the four-year regime when it is introduced, and who benefit under the current regime for the remittance basis of assessment, will be eligible for a reduction in the tax charged on non UK income. For the 2025-26 tax year only, they can pay reduced tax on foreign income at 50% of the total. Foreign gains are excluded.

Asset rebasing opportunity

In 2017 non-UK assets that were personally held by someone who had qualified as a non dom, but who then became deemed UK domiciled after the 2017 reforms, were automatically rebased to their value on 5 April 2017. A similar policy is due to be introduced for these reforms, whereby if a qualifying individual disposes of an asset on or after 6 April 2025, they can elect to rebase their assets to their value at 5 April 2019.

Two year temporary repatriation facility

Any non doms who previously used the remittance basis will be able to elect to remit foreign income and gains that arose before 6 April 2025 to the UK at a reduced tax rate of 12%. This is a time limited opportunity only available for remittances made in the 2025-26 and 2026-27 tax years. All income and gains remitted in subsequent years will be taxed at the usual rates. Therefore, some individuals may consider bringing assets into the country sooner to take advantage of this lower tax rate. Note that the temporary repatriation facility excludes income and gains matched with benefits received from offshore trusts.

Pre-6 April 2025 foreign income and gains within non-UK trust structures

Any foreign income and gains which arose prior to 6 April 2025 in non-UK trust structures that benefited from protected settlement status will not be taxed unless matched with distributions or benefits paid to individuals who have been UK resident for more than four years.

Inheritance tax

The reforms to the non dom rules will also affect inheritance tax although there is little detail on this currently. A consultation is to be held, but it is likely that the government will move to a residence-based regime for inheritance tax. It has been suggested that an individual’s worldwide assets could fall within the scope of UK inheritance tax once they have been UK resident for ten years.

If you would like to discuss the financial implications or wish to consider how you might employ proactive tax planning strategies in advance to mitigate the effects, please contact us via partners@rjp.co.uk.

Read more articles like this

What is happening to the furnished holiday lettings regime?

General Election 2024: Where do Labour and the Conservatives sit on tax?

Failure to understand tax law costs property owner £25k capital gains tax

What’s your ultimate succession plan?

Basis period reform – the fallout isn’t over yet!

Share this:

All Articles

Business Services

Business Tax

Personal tax

Probate and Inheritance Tax

VAT

Image
Image

60 Day Deadline for CGT Returns and Tax Payments

If you sell a property and incur capital gains tax on the transaction, you will need to file a tax return and also pay any tax that is due within 60 days of completion, or penalties will arise. Need help with your property taxes? Talk to us.