What Do You Need to Know About Rachel Reeves’ Tax Updates for Non-Doms?
From 6 April 2025, the current remittance basis regime will be replaced with a new residence-based test. The new regime will be available for four years starting from 6 April 2025 or the first tax year in which the individual becomes UK resident if later. It will be available to any individuals who have been non-UK resident for at least the previous ten tax years.
Key Updates and Implications
The UK government’s latest Autumn Budget, delivered by Chancellor Rachel Reeves, brings significant tax reforms, particularly concerning UK resident non-domiciled individuals (“non doms”). The Budget confirms the abolition of the remittance basis of taxation and the introduction of a new residence-based tax regime. These changes mark the most significant overhaul of non-dom taxation in recent years and will affect both existing and future UK tax residents.
Here’s a breakdown of the key proposals, along with an explanation of the current remittance rules and what these reforms mean for individuals affected.
Understanding the Remittance Basis for tax years ended 5th April 2025
Non-domiciled individuals (non-doms) in the UK have had the option to use the remittance basis of taxation, a system that allows them to avoid UK tax on their foreign income and gains, provided these are not remitted (brought) into the UK.
Key Features of the Remittance Basis
UK Income and Gains:
Non-doms must pay UK tax on all UK income and capital gains, regardless of whether they use the remittance basis.
Foreign Income and Gains:
Non-doms can opt to be taxed on foreign income and gains only when these funds are remitted to the UK.
If such income and gains remain offshore, they are not subject to UK tax.
If unremitted foreign income and gains were below £2,000 in a tax year, the remittance basis applied automatically without affecting personal allowances or capital gains tax exemptions.
Loss of Personal Allowances:
If foreign income and gains exceeded £2,000, individuals claiming the remittance basis lose access to personal allowances and capital gains tax exemptions for that tax year.
Remittance Basis Charge (RBC):
Long-term UK residents who wished to use the remittance basis were subject to a Remittance Basis Charge (RBC):
- £30,000 Charge for those UK tax residents for at least 7 of the previous 9 tax years.
- £60,000 Charge for those UK tax residents for at least 12 of the previous 14 tax years.
Deemed Domicile Rule:
Since 6 April 2017, individuals who have been UK residents for 15 of the previous 20 tax years are considered deemed domiciled.
Deemed domiciled individuals cannot use the remittance basis and must pay UK tax on their worldwide income and gains.
Upcoming Changes – The End of the Remittance Basis
From 6 April 2025, the remittance basis will be abolished and replaced with a new Foreign Income and Gains (FIG) regime. This marks the end of domicile-based taxation in the UK, aligning the UK with other countries that use a residence-based tax system.
New Four-Year Foreign Income and Gains (FIG) Regime
A new four-year tax relief system will be introduced for individuals who become UK tax residents after at least ten consecutive years of non-UK residence. The Statutory Residence Test will be used to determine tax residence, ignoring treaty residence or non-residence, and split years.
Key Features of the FIG Regime
UK Income and Gains:
They will still be taxed on all UK income and gains.
Foreign Income and Gains:
Eligible individuals will not pay UK tax on their foreign income and gains (FIG) for the first four tax years after becoming UK tax residents.
They can remit foreign income and gains into the UK tax-free.
No tax on distributions from non-resident trusts.
Loss of Personal Allowances:
Personal allowances and capital gains tax exemptions will be forfeited.
Eligibility:
Individuals who become UK tax residents after at least ten consecutive years of non-UK residence.
Individuals must make a claim each year to apply the regime.
It is possible to choose what FIG the claim applies to. For instance, it will be possible to apply the regime to one source of foreign income, but not to others or to foreign income, but not foreign gains.
Example: How the FIG Regime Works
Hobson became a UK tax resident in 2022/23 after ten years abroad. He will have been resident in the UK for three years by 6 April 2025. In tax year 2025/26, he will still qualify for the FIG regime because it is his fourth tax year of UK residence after a ten-year period of non-UK residence.
Transitional Arrangements
Capital Gains Tax (CGT) Rebasing: Individuals who have used the remittance basis can rebase foreign assets to their value as of 5 April 2017, reducing CGT liabilities on future disposals.
Temporary Repatriation Facility (TRF): To encourage remittances of foreign wealth, a 12% tax rate will apply in 2025/26 and 2026/27, increasing to 15% in 2027/28 before reverting to normal rates after 2028/29.
This applies to individuals who earned FIG while on the remittance basis and are UK residents in the relevant tax year. It also extends to settlors or beneficiaries of offshore trusts, subject to certain conditions
The End of Business Investment Relief
From 6 April 2028, Business Investment Relief, which allowed non-doms to invest foreign income in the UK without triggering tax charges, will be abolished for new investments.
Overseas Workday Relief (OWR):
From 6 April 2025, OWR, which provides tax relief on foreign earnings, will now be based on residency rather than domicile, for up to four years (previously three), with a new cap at the lower of 30% of qualifying income or £300,000 per year. The relief applies whether earnings are received in the UK or offshore.
Major Inheritance Tax (IHT) Reform:
From 6 April 2025, IHT will be based on UK residency instead of domicile. Long-term residents (10+ years in the UK out of 20) will be subject to IHT on their worldwide assets. Transitional rules will apply for non-doms who are non-resident in 2025/26. A “tail provision” will keep long-term residents in the IHT net for up to ten years after leaving the UK, depending on their length of residency.
Trusts:
From 6 April 2025, IHT will apply to non-UK trust assets based on the settlor’s long-term residence status at the time of the charge. If the settlor is long-term resident, trust assets will be subject to IHT. An exit charge of up to 6% may apply if the settlor ceases to be long-term residents.
What This Means for Taxpayers
With the abolition of the remittance basis and a move toward residence-based taxation, the UK is making sweeping changes to its tax regime. While these reforms aim to simplify the system and improve international competitiveness, they introduce new complexities for high-net-worth individuals, investors, and professionals.
If you are a non-dom or an individual affected by these changes, it is crucial to seek tax advice to assess the impact and explore any planning opportunities before the new rules take effect in April 2025.
Get expert advice
We recommend that all current non-domiciled individuals, regardless of how long they have lived in the UK, review their position without delay in particular, their domicile status. Get in touch with an expert tax adviser at Chart Accountancy to discuss your options.
