Changes to non-domicile status had already been announced by the former Conservative government prior to the election and, given it was generally supported by Labour, the confirmation of its abolition is of no surprise.
From 6 April 2025, there will be no concept of domicile and, instead, liability to income tax and Capital Gains Tax will be determined by residency. From that date, the perceived preferential treatment for those claiming non-domicile will change completely.
Most tax benefits will largely only be available to those who have been present in the UK for a short time, along with some transitional provisions for those ceasing to be non-domiciled:
- Providing someone has not been resident at all in the previous ten years, then there will be no UK taxation of foreign income or gains for the first four years of commencing residence. These amounts may be sent to the UK with no tax cost.
- There will be no remittance basis available, so from 6 April 2025 those who were previously able to benefit will be taxed on their worldwide income and gains in the same way as any other UK tax resident individual.
- Those that have previously benefitted from the remittance basis, such that there are untaxed income and gains offshore, will still be charged to tax when remitted, in line with the previous regime, subject to the temporary repatriation facility (TRF) detailed below.
- There will be a new TRF. For those previously benefitting from the remittance basis, it will be possible to elect for income and gains that were sheltered from UK tax, to be sent to the UK at a reduced rate of 12% (for declarations made between 6 April 2025 to 5 April 2027), or 15% (for tax year ending 5 April 2028). The clue being in the name; this is expected to be a one-off opportunity.
- Once the TRF declaration has been made, and the extra tax paid, the amounts can be remitted at any time, not just during the TRF window.
- A similar relief will be available to settlors and beneficiaries of excluded property trusts, provided the appointments can be matched to income and gains arising before 6 April 2025.
- The trust protections and trust tainting rules for overseas trusts will be abolished from 6 April 2025. This will include structures within the settlements and transfer of assets abroad legislation.
- Consequently, from 6 April 2025, overseas trust structures will no longer be effective for avoidance of income or Capital Gains Tax, whenever created. The only respite will be the four-year rule which may be applied to new UK tax-resident settlors or beneficiaries.
- Taxpayers previously able to claim the remittance basis will be able to rebase overseas assets to market value as at 5 April 2017. This will only be available for those who have not previously been domiciled or deemed domiciled.
In time, this may make for a simpler, albeit costlier for those affected, regime. We will need to wait and see whether it ultimately has a negative effect, due to non-domiciled individuals emigrating from the UK to avoid the increased tax regime.
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