As expected, the Autumn Budget 2024 has confirmed significant changes to the taxation of non-UK domiciled individuals, set to take effect from 6 April 2025.

“Everyone who makes their home in the UK should pay their taxes here”, commented Rachel Reeves. Therefore, the UK government has announced it will be replacing the remittance basis of taxation with a simpler residence-based regime. This new framework aims to enhance the UK’s international competitiveness while simplifying tax obligations for non-doms.

Under the new regime, individuals who have not been in the UK for 10 years prior to arrival and opt-in will enjoy a four-year grace period during which they will not be liable for UK tax on foreign income and gains (FIG). This initiative is designed to attract talent and investment to the UK, making it an appealing destination for new residents.

After the four-year grace period, individuals will transition to the standard UK tax system. This means:

1. Worldwide Taxation: individuals will be subject to UK tax on their worldwide income and gains, regardless of whether these are remitted to the UK or not.
2. End of FIG Exemption: The exemption from UK tax on foreign income and gains (FIG) will cease. All foreign income and gains will become taxable in the UK as they arise, similar to how UK-domiciled residents are taxed.
3. Reporting Requirements: Individuals will need to report all their worldwide income and gains on their UK tax returns, not just those remitted to or arising in the UK.

From 6 April 2025, all former remittance basis users who are not eligible for the four-year FIG regime will pay tax at the same rate as other UK resident individuals on any newly arising FIG like any other taxpayer, unless they make use of the new Temporary Repatriation Facility.

Temporary Repatriation Facility (TRF)

The TRF will be extended to three years (an increase from the previous two-year period), broadening its scope to include offshore structures. Additionally, the previously planned 50% reduction in foreign income subject to tax during the first year of this new regime has been scrapped, signalling a shift towards a more straightforward approach.

To use the TRF, taxpayers will make a designation on an amount, which can include amounts derived from FIG on which the remittance basis has been claimed.

Designated amounts will be charged to a tax rate (i.e. TRF charge) of 12% in the tax years ended 5 April 2026 and 5 April 2027 with the rate rising to 15% in tax year ended 5 April 2028. The TRF charge will be payable on the designation rather than actual remittance. Hence, once a designation has been made, no further UK tax will be payable on such funds, regardless of when such funds will actually be remitted to the UK.

Unfortunately, whilst making use of the TRF, it will not be possible to set any foreign tax paid against the TRF charge because designated amounts will be treated as being net of tax.

The mixed fund rules will also be simplified, encouraging individuals to invest their FIG in the UK.

The TRF presents an opportunity for non-doms to optimise their tax planning as they adapt to the new regulations. Non-doms may choose to transfer assets strategically to maximise their financial stability under the new regime, The TRF is designed as a temporary, transitional measure to support non-doms in adjusting to a significant tax landscape shift.Overall, the government aims to balance simplification with maintaining the UK’s attractiveness for international talent while ensuring a more equitable tax system. We recommend individuals to start exploring planning opportunities now and how their affairs can be structured to potentially realise gains or reorganise investments before the end of the three-year period for TRF and four-year period for new arrivals.

Inheritance Tax (IHT)

In terms of IHT, the government will introduce a residence-based system that eliminates the use of offshore trusts to shelter assets from IHT.

UK assets will remain in scope for IHT on the same basis as at present, regardless of residence. However, from 6 April 2025, non-UK assets will fall within the scope for IHT if an individual has been a Long-Term Resident (LTR), in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises.

For an individual 20 years old or younger, the test will be whether they have been UK resident for at least 50% of the tax years since their birth.

There will be transitional rules for non-domiciled or deemed domiciled individuals who are non-resident in 2025 to 2026.

The time the individual remains in scope after leaving the UK will be shortened where they have only been resident in the UK for between 10 and 19 years.

Such changes also apply to offshore trusts, which means that any foreign trusts holding foreign property (previously “excluded property trusts” and so not subject to IHT charges) will no longer enjoy perpetual exemptions from IHT.  The taxation of offshore trusts will follow the settlor’s LTR status. As such, non-UK assets will only be excluded property at times when the settlor is not LTR. When a settlor is LTR, any assets they have settled (even when not LTR) will be subject to IHT.

Capital Gains Tax

For Capital Gains Tax, current and past users of the remittance basis will have the opportunity to rebase personally held foreign assets to 5 April 2017 upon disposal, provided certain conditions are met. This change could offer significant tax relief for long-term UK residents.

Overseas Workday Relief (OWR)

The government also plans to retain and reform Overseas Workday Relief (OWR), extending its duration to four years and removing the requirement that income must remain offshore. OWR is now available to anyone who is also eligible for the FIG regime, even UK-domiciled individuals.

However, claims will be capped at the lower of £300,000 or 30% of an employee’s net employment income.

Offshore Trusts

The protection from tax on FIG arising within settlor-interested trust structures will also no longer be available for non-domiciled and deemed domiciled settlors who do not qualify for the new FIG regime. FIG that arose in protected non-resident trusts before this date will not be taxed unless distributions or benefits are paid or deemed to be paid to UK residents. FIG which arose within the trust structure before this date will be taxed on UK resident settlors or beneficiaries not within the 4-year FIG regime if these are matched to worldwide trust distributions received.

For IHT purposes, offshore trusts will now follow the “long-term residence” status of the settlor and so will no longer benefit from excluded property status as mentioned above.

Should you require any support or advice, our international tax advisers are here to guide and help clients through this transition.