What is the reform?
For the most part, the ‘reform’ is referencing a removal of the remittance basis from 6 April 2025 and the introduction of a new Foreign Income and Gains scheme.
Whilst not covered in the scope of this article, we also understand that the concept of domicile will no longer be relevant for UK Inheritance Tax legislation, with the Government moving to a resident-based test, and that the Trusts previously treated as ‘excluded property will no longer benefit from associated benefits.
Current interpretation of ‘non-dom’
The assessment or guidance on an individual’s domicile has historically relied on the interpretation of case law, as there has been no statutory test or decision facility provided by HMRC, despite the concept of domicile being of critical importance.
An individual can only have one domicile at any time, which is broadly established by considering the parents domicile at the time of the individual’s birth, whether that altered before the age of 16, and whether the individual might have established a domicile in a new country based on connecting factors and an intention to permanently reside.
This is a complex subject that is open to interpretation and by enacting a reform to how non-UK domiciled individuals are taxed in the UK, both in respect of income, Capital Gains Tax and IHT allows the UK Government and tax profession to move forward and advise with stability and certainty in respect of the UK tax landscape for these affected individuals.
What is the current non-dom regime?
Taxpayers who are non-UK domiciled (non-doms) can elect to be taxed on the remittance basis of taxation.
On this basis, taxpayers are subject to UK tax on their UK source income and gains, however they will only be taxed on foreign income and gains to the extent they are remitted (or enjoyed) to the UK. The legislated definition of ‘remittance’ was wide reaching and individuals who claimed the remittance basis often found the rules and guidance in determining what income, gain or ‘clean capital’ had been remitted to be complex and difficult to manage.
For most, the cost of claiming the remittance basis in their first seven years of UK residence was marginal; the loss of their UK personal allowance and annual exemption, both of which have become less beneficial through the freezing or reduction by successive Chancellors.
Once a non-dom had been in the UK for seven of the previous nine tax years, they are liable to pay a charge of £30,000 per year, rising to £60,000 for twelve of the previous fourteen tax years, to continue the benefit of the remittance basis. This would always be in addition to the tax on any remittances made.
Following these periods, taxpayers will become ‘deemed domicile’ in the UK once they have been resident for fifteen of the previous twenty tax years. Such non-doms are therefore required to pay tax on their worldwide income and gains as they arise from this point, following the same treatment as UK-domiciled taxpayers.
From 6 April 2025 no individual, regardless of the length of time they have been UK resident nor the value of their unremitted income or gains, will be able to claim the remittance basis. Instead, the extent to which the Government will require such an individual to declare and tax non-UK income and gains will be dependent on whether they fall into the new Foreign income and Gains legislation and how some of the related legislation changes affect them.
Foreign Income & Gains (FIG)
In place, a new regime will be introduced. This is proposed to apply to individuals returning to the UK following at least 10 consecutive tax years of non- UK residence.
Under the proposed Foreign Income and Gains (FIG) regime, taxpayers, regardless of the existing concept of domicile, will receive 100% tax relief on foreign income and gains during the first four tax years following arrival in the UK. This is positive news to UK expats returning to the UK after long periods of non-UK residence.
In a similar manner to the current remittance basis of taxation, taxpayers will need to make an election each year for the treatment to apply. Additionally, any claim will lead to a loss of the personal allowance and annual exemption. CGT exemptions are currently only £3,000, however as the personal allowance remains at £12,570 it will still be necessary in some cases to compare the most beneficial basis of taxation.
Transitional provisions
For those individuals arriving in the UK before the 2024 Spring Budget, but after 6 April 2021, the removal of the remittance basis will be an unwelcomed surprise; The expectation under the remittance basis was to be able to exclude non-UK income and gains, but with the replacement FIG regime and its reduced four-year period it provides no benefit.
Although it was previously announced that transitional arrangements would allow those who lose access to the remittance basis and not qualify for FIG, to have a 50% reduction in foreign income in 2025/26, the new Labour government have confirmed that this will not be introduced. These impacted individuals will lose all benefits.
For those who are in their first four years of UK residence (any part) post April 2025, the FIG regime will be available to them until the end of the 4th year period. Furthermore, we understand that if a qualifying individual leaves the UK during the four-year window, they will be able to claim for the remaining FIG years on their return to the UK (i.e. the four year window is not set, but is a cumulative number of years).
| Tax Year of Assessment | ||||
| Year of Arrival (below) | 2025/26 | 2026/27 | 2027/28 | 2028/29 |
| 2020/21 | Arising Basis | Arising Basis | Arising Basis | Arising Basis |
| 2021/22 | Arising Basis | Arising Basis | Arising Basis | Arising Basis |
| 2022/23 | FIG | Arising Basis | Arising Basis | Arising Basis |
| 2023/24 | FIG | FIG | Arising Basis | Arising Basis |
| 2024/25 | FIG | FIG | FIG | Arising Basis |
| 2025/26 | FIG | FIG | FIG | FIG |
Note – any part of a tax year is counted as being present in the UK
Capital Gains Tax
Those who are currently taxed on or have previously claimed the remittance basis will be able to rebase foreign assets to their value as at a certain date. This date is to be confirmed and despite the Conservatives views that this should be 5 April 2019, Labour stated they would seek professional opinion and confirm in the Autumn Budget.
Neither Government have commented on the treatment of Capital Losses arising on the disposal of non-UK assets; previously under the remittance basis, a separate one-off irrevocable election was required to secure any benefit from non UK losses. Whilst it is expected these elections will no longer bear a relevance under new legislation, whether foreign losses made in a FIG year will be claimable is to be seen.
Temporary Repatriation Facility
Pre-6 April 2025 foreign income and gains which were excluded from the charge to tax by virtue of the remittance basis, will continue to be taxed when they are remitted to the UK. This could pose practical issues, such as account segregation and a continuation for the need of mixed fund analysis. A mixed fund is in essence a non-UK account which will contain a variance of multiple years of income, gains or clean capital. Remitting funds from a mixed fund necessitates following specific legislative steps to determine the source of the remittance.
In response to the removal of the remittance basis, a temporary repatriation facility (TRF) will be accessible to those who previously claimed the remittance basis of taxation. During a limited period, individuals will have the opportunity to remit relevant foreign income and gains that arose in a remittance basis year at a reduced tax rate. Initially, it was proposed that this facility would be available at a flat rate of 12% during the 2025/26 and 2026/27 tax years. However, once this window closes, remittances of pre-6 April 2025 foreign income and gains will be subject to the standard tax rates.
The specific time frame and tax rate for the TRF are currently under review, but Labour has expressed support for these proposals and may even extend the facility to attract investment into UK businesses.
It is expected that the TRF will not allow for credit for foreign taxes paid, so while the reduced tax rate may seem appealing, it may not necessarily result in lower overall tax liability.
Overseas workday relief
Currently, non-doms in their first three years of UK residence and electing to use the remittance basis can exempt from the charge to tax earnings from an employment to the extent that these earnings relate to non-UK workdays, and those earnings are paid and remain outside of the UK. A tax charge only arises to the extent that those earnings are remitted to the UK.
It was proposed by the Conservatives that overseas workday relief (OWR) rules would be retained for the first three years of tax residence in the UK for those that qualify for the new FIG regime. Labour have confirmed that OWR will continue to be available in some form, however there is no indication as to how this might work and interact with FIG. Further detail will be available in the Budget on 30 October 2024.
Trust Protections
From 6 April 2025, protection from tax on income and gains arising within non-UK settlor interested trust will no longer be available to UK resident but non-UK domiciled and deemed domiciled individuals. The result of this is that UK resident settlors will be taxed on income and gains arising within the trust structure as they arise (bringing them in line with UK domiciled settlors).
The exception to this is if the settlor qualifies for the new foreign income and gains regime. Under this, qualifying individuals (both beneficiaries and settlors) will be able to receive benefits from offshore structures without these being matched to income or gains arising within the structure.
The implications of this are likely to be significant, not least for the non-UK Trustees whose UK reporting obligations, through UK resident settlors and beneficiaries, will increase.
In addition to the removal of Trust protections, Labour intends to review anti-avoidance legislation, ensuring it remains fit for purpose. Namely this will include the settlements code and Transfer of Assets Abroad legislation. Any changes from this are likely to come into effect from April 2026.
Practical implications
Undoubtedly, these new regulations mark a significant shift in the taxation of non-UK domiciled individuals in the UK since the adoption of the remittance basis.
For some, these new rules may come as a relief, with many standing to benefit from the temporary repatriation facility and rebasing facility. However, as we progress into 2025/26, it is crucial that we remain mindful of important factors and do not lose sight of the remittance basis legislation.
Assessing an individual’s UK residence position under the Statutory Residence Test and maintaining records of their movements each year will continue to be of utmost importance. Residence will remain the primary determinant of whether HMRC will assess an individual’s UK sources only or worldwide (subject to FIG).
For individuals fortunate enough to benefit from rebasing, the temporary repatriation facility, and FIG (likely applicable only to those who claimed the remittance basis after 2022/23), caution must be exercised when remitting income or proceeds from the sale of foreign assets. Practical concerns and complications surrounding the remittance basis and mixed fund analysis may make it challenging to remit such proceeds without triggering unexpected tax charges, especially if foreign income or gains were originally used to purchase the foreign asset. The process, known as mixed fund analysis, can be costly and may require professional assistance to ensure accurate compliance.
Considerations such as these emphasise the need to remain mindful of previous legislation. UK residents who have at some point claimed the remittance basis will still be required to continue tracking and keeping foreign income and gains outside of the UK to avoid a tax charge. Consequently, clear and segregated account structuring may continue to be necessary.
As ever, we will update you on any changes to legislation following the Autumn Budget at the end of October. If you would like to speak to a member of our team, please do get in touch.
Important Note
The information contained within this document is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale.
This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product.
Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
If you are unsure about the suitability of otherwise of any product or service, we recommend that you seek professional advice.
Tax treatment depends upon individual circumstances and is based on current UK tax legislation, that is subject to change at any time.
