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Should I stay or should I go? A practical guide to the UK’s non-dom tax changes
More than 200 years of UK tax history are about to be rewritten. The planned withdrawal of the country’s resident non-domiciled tax regime will impact different non-doms in different ways, even those planning to leave. The exact size and scope of the changes remain to be seen and will depend on the outcome of the 4 July election, but with the new rules potentially coming into force from 6 April 2025, the best approach for anyone who will be affected is to start planning and considering possible scenarios now.
Our special Wealth Planning Perspectives seminar on 24 April dissected the proposals that have been announced and delved into the possibilities around those yet to be confirmed. The lively discussion was led by our Head of Wealth Planning UK, Jennifer Ollerenshaw, and Senior Wealth Planner UK, David Barker, who were joined by EY Partners Tom Evennett and Sonia Rai. They looked at the practical steps that people with different non-dom status in the UK should be considering, and suggested starting discussions with advisors and bankers as soon as possible.
At Lombard Odier, our clients and prospects can count on us to maximise and structure their wealth in line with local regimes, no matter where they are located. We encourage you to get in touch with us if you are seeking support and direction on the upcoming changes to the UK non-dom regime.
Key points: new UK non-dom rules
- The UK plans to abolish its non-dom regime from 6 April 2025, with major implications for how non-doms and their trusts are taxed
- Uncertainty still hangs over the proposals – they are not yet in law and the ruling Conservative Party has called an election for 4 July 2024
- The opposition Labour Party supports most of the proposed measures, but with some notable differences on inheritance tax and trusts
- Whichever party wins the election, they are unlikely to publish more details on their intentions until autumn
- Big changes are certain, meaning that now is the time to prepare. All res-non-doms will be affected in some way, whether they have been in the UK a short time, over a decade, or are planning to leave.
The biggest changes to the UK non-dom tax regime
The proposed removal of non-doms’ ability to pay tax on a remittance basis1 is the headline change. It would be replaced with a Foreign Income and Gains (FIG) regime from 6 April 2025, if the Conservative government’s plan comes into force. This will give new arrivals a four-year exemption from paying UK tax on foreign income and gains. Individuals will be eligible for the four-year FIG regime only if they have not been UK resident for the previous 10 tax years. Labour has said it supports these proposals.
Many non-doms who have been claiming the remittance basis will not be eligible for the FIG regime and would move to paying UK tax on a worldwide basis from 6 April 2025. However, the Conservatives have proposed three transitional provisions that different people may be able to take advantage of:
1. Anyone moving from paying tax on a remittance basis in 2024/25 to paying on a worldwide basis in 2025/26 would be subject to UK tax on only half of their foreign income in 2025/26. However, Labour says it would scrap this provision.
2. These individuals will also be eligible for a ‘rebasing’ of personally held foreign assets to their value on 5 April 2019 for capital gains tax purposes. This will apply to disposals on or after 6 April 2025, and the asset must have been held at 5 April 2019.
3. A potential Temporary Repatriation Facility (TRF) available from 6 April 2025 to 5 April 2027 would allow foreign income and gains previously sheltered by the remittance basis to be remitted or brought into the UK at a rate of 12%. This is attractive given current tax rates on remittances are up to 45% on income and 20-28% on capital gains. Labour has suggested it may extend this measure beyond 2027. Anyone considering large remittances should consider their timing.
Will there be changes to inheritance tax and trusts for UK res-non-doms?
Rules around inheritance tax (IHT) will also be scrapped and rewritten under the Conservative proposals. Today’s domicile-based system would be replaced with a residence-based regime; the current proposal is that after 10 years of UK residence, an individual’s worldwide assets would fall within the scope of IHT, compared with 15 years now.
Anyone then leaving the UK and becoming non-resident after 10 or more years of residence would face a 10-year “tail” during which their worldwide assets would remain within the scope of IHT – up significantly from a three-year tail now.
A wholesale remodelling of IHT would be complex and the 10-year tail controversial. The Conservatives said in March that they would consult on this aspect of the changes, but no consultation document has been published and any further progress will be driven by whichever party wins power on 4 July.
Read also: Managing family wealth: an interview with our Grandes Familles Internationales team
For offshore trusts set up by non-doms, some fundamental changes are proposed. Under current rules, foreign assets held on a trust settled by a non-dom during the first 15 years of UK residence remain exempt from IHT, even though the settlor may remain UK resident and become ‘deemed domiciled’ or UK domiciled. The Conservatives are proposing removing this important IHT exemption, subject to a grandfathering arrangement2 for those settled by non-doms before 6 April 2025. The Labour Party differs, saying it would seek to bring these trusts within the UK IHT net, but it is yet to reveal further details on how it would go about this.
Another element to consider for UK resident trust settlors is the planned abolition of protected settlements. Introduced in 2017 to discourage the departure of non-doms when the remittance basis was capped at 15 years, they have shielded UK resident non-dom settlors from taxes on foreign income and gains arising within an offshore trust. Removing them would mean that UK resident settlors of settlor-interested trusts3 would face tax on income and gains of the trust, unless the settlor falls under the FIG regime.
Which rules might apply to you?
The proposed non-dom rule changes will affect different people in different ways, and it’s important to speak to your banker and advisors to work out which proposals may impact you and how. The upcoming UK election also means some of the plans could change, particularly around the TRF and inheritance tax. The current landscape suggests that:
Any non-doms who have been in the UK for over four years on 6 April 2025 will become subject to UK tax on their worldwide income and gains. Those who have been in the country for less time may qualify for the four-year FIG regime, but any previous years of UK residence will be deducted.
Those who have been UK resident for more than 10 years will see their worldwide assets fall within the scope of IHT from 6 April 2025. Individuals who have trusts in this category will likely also face changes.
Read also: Advantages of multi-generational wealth planning
The big change for anyone UK resident and already deemed domiciled will be around IHT. The current three-year tail they face if leaving the UK would increase to 10 years. Anybody who settled trusts prior to becoming deemed domiciled will also face changes. However, the TRF could allow them to bring in previously unremitted income and gains at the preferential 12% rate.
Lastly, anyone deciding to become UK resident after 6 April 2025 who has not been resident in the previous 10 years will qualify for the FIG regime and be exempt from UK tax on foreign income and gains for four years. This includes distributions from trusts.
What do settlors of offshore trusts have to think about?
There is no one-size-fits-all approach for those considering how to manage trusts ahead of the proposed changes. For UK resident settlors who do not qualify for the FIG regime and may lose trust protections, their options could include amending the trust terms, finding ways to prevent or defer income and gains arising within the trust, rebasing the assets, making distributions before April 2025, terminating the trust or becoming non-resident.
Read also: Five questions for expats moving to or living in the UAE | Lombard Odier
Tax is of course not the only factor to take into consideration when making a decision on residence – family, lifestyle and business considerations are all hugely important issues. Those thinking of leaving the UK may choose to look at countries with attractive non-dom regimes such as Switzerland, Italy, the UAE, Malta, the Bahamas or Ireland. Lombard Odier has a unique network of more than 25 offices around the world that can support you before, during and after relocation. Our clients are always able to contact their banker and wealth planner to discuss these possibilities further.
1 Paying UK tax on UK income and gains, and on any foreign income and gains brought into or used in the UK.
2 Allowing old rules to stay in place for pre-existing trusts.
3 Where the person who created the trust is deemed by UK tax law to have kept some or all of the benefits attaching to the property which he has given away; Settlor-interested trusts | Tax Guidance | Tolley (lexisnexis.co.uk)
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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