Tax rules for non-domiciled residents
From 6 April 2025, non-domiciled residents or ‘non-doms’ in the UK will experience a tougher tax environment under new tax rules proposed by the Government.
Previously, non-doms have had the benefit of exempting their foreign income and gains (FIG) from UK tax unless it was remitted to the UK, under what has been widely referred to as the ‘remittance basis’.
The current remittance-based system will be replaced with a residence-based test, with the new regime being available for up to four years beginning on 6 April 2025, or the first tax year that non-doms become UK resident if later.
During these four years, those entering the UK as new arrivals will not be liable to UK tax on their FIG meaning that this income can be brought to the UK freely without a tax burden. However, those opting into the four-year FIG will lose their entitlement to the income tax personal allowance and the CGT annal exemption.
This new regime will only be available to individuals who have not been UK resident for at least ten tax years, however qualifying individuals that have been resident in the UK for less than four years at the date of change, 6 April 2025, will be able to use the FIS regime for the remainder of the four-year term.
After the four-year term has ended, UK resident non-doms, will be taxed on their worldwide income and gains.
Whilst there will be transitional rules to soften the impact for current non-doms, these are currently under review by the Labour Government and is expected to be far less than generous than the proposals outlined by the previous Conservative Government. Further details are expected to be announced at the Autumn Budget schedule for 30 October 2024.
The non-dom rules will also see changes to UK Inheritance Tax (IHT).
From 6 April 2025, chargeable events arising on or after this date will become chargeable in the UK to IHT where individuals who have been UK resident for the 10 years immediately prior to the chargeable event.
Once the 10-year test has been met, non-doms stay within UK IHT chargeability for the following 10 years regardless of whether they are UK resident or not. Therefore, individuals would need to be non-UK resident for at least 10 years after leaving the UK to be outside of the scope of UK IHT.
These rules will apply to both individuals and trusts, with no retrospective effect. Only deaths occurring after the implementation date above will be impacted.
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