UK Spring Budget 2024: the end of the ‘non-dom’ regime

UK Chancellor Jeremy Hunt announced in the Budget Statement on 6 March that the government is to abolish the remittance basis of taxation for non-UK domiciled individuals (‘non-doms’). The remittance basis is currently available to non-UK domiciles who are UK resident and shelters their unremitted foreign income and gains (FIG) from UK tax.

From 6 April 2025, the remittance basis will be replaced by a new ‘four-year regime’, which can only be accessed by new arrivals – individuals who have been non-UK resident for at least 10 UK tax years.

For this four-year period, FIG will be entirely exempt from UK tax and can be brought to the UK without a UK tax charge. But individuals who have been tax resident in the UK for more than four years will pay UK tax on their FIG, regardless of their domicile status.

Transitional arrangements for existing non-doms currently claiming the remittance basis include an option to rebase the value of capital assets to 5 April 2019 and a temporary 50% exemption for the taxation of foreign income for the first year of the new regime (2025-26).

The government will also introduce a two-year Temporary Repatriation Facility for individuals who have paid tax on the remittance basis prior to 6 April 2025, allowing them to bring previously accrued FIG into the UK at a special 12% rate of tax.

Eligible employees will also be entitled to claim Overseas Workday Relief (OWR) during their first three years of tax residence for income from employment duties carried out overseas.

For Inheritance Tax (IHT) purposes, new arrivals will be subject to IHT on their UK assets only for their first 10 years of UK residency. After 10 years, they will be subject to IHT on their worldwide assets.

Previously, where a non-resident (offshore) trust had been settled by a non-UK domiciled individual, FIG could be rolled up in the trust free from UK tax. Only distributions made to UK residents were potentially subject to UK tax.

Under the new regime this protection will be removed. FIG and certain distributions outside the UK will be entirely exempt during the first four years of UK residency. But subsequently, all profits in the trust will be taxable on the settlor of the trust and beneficiaries will be taxable on distributions wherever they are made.

Trusts will retain existing protection from IHT. However, the government announced that it also intends to move to a residence-based regime for IHT and will consult in due course on the best way to achieve this. No changes to IHT will take effect before 6 April 2025.

There will be a UK General Election before 6 April 2025, when these changes are scheduled to be introduced. The Labour Party, which is currently in opposition but widely predicted to win, had previously announced that it would abolish the non-dom regime. It is not yet clear, if elected to government, whether it will implement these Conservative Party non-dom proposals in their current form.

However, with both main political parties now promoting the abolition of the remittance basis of taxation, along with proposed changes to the UK tax treatment of overseas trusts and IHT more generally, it is clear that all non-doms presently in the UK (and any individuals who are currently considering a move to the UK) will need to review their tax planning as a matter of urgency.

It is likely that all individuals in the following categories will be impacted or affected by these proposals:

• Individuals who are non-UK domiciled and planning to become UK resident.
• Non-UK domiciles who are UK resident and taxed on the remittance basis.
• Non-UK domiciles who are UK resident and have some form of beneficial interest in an overseas structure such as trust or company.
• Non-resident individuals who are still potentially UK domiciled.

It is strongly recommended that immediate advice is taken by anyone likely to be affected by these proposed measures. Any planning will take time and time is short so urgent action is required. Sovereign will be able to assist with this. If you would like to receive further information on the changes and the implications, please contact your nearest Sovereign office.

Other key changes for Private Clients contained in the Budget Statement are as follows:

Capital Gains Tax (CGT)

The government will reduce the higher rate of Capital Gains Tax on residential properties from 28% to 24% from 6 April 2024. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band.

Stamp Duty Land Tax (SDLT)

Multiple dwellings relief (MDR) from SDLT will be abolished. The government said an external evaluation of MDR had found no strong evidence that MDR was meeting its original objective of supporting investment in residential property and the private rented sector, but instead was being claimed by people buying larger residential properties with ancillary accommodations.

Prospective buyers of such properties generally have until 1 June 2024 to complete their purchase with the benefit of MDR. Those who have exchanged contracts on or before 6 March can continue to benefit from the relief whenever they complete.

Transfer of Assets Abroad

The government will legislate to prevent individuals using a company to bypass anti-avoidance legislation, from 6 April 2024, under the Transfer of Assets Abroad (ToAA) provisions. It follows the Supreme Court ruling in HMRC v Fisher [2023] UKSC 44, which held that a transfer of a business to Gibraltar from the UK did not fall within the scope of ToAA rules.

The amendments will deem individuals who are participators in a close company, or a non-resident company that would be close if it were UK resident, as transferors to address situations where transfers are made by such companies. This will ensure that a transfer made via a company, in which the individual is an owner or has a financial interest, will be considered a ‘relevant transfer’ by that individual for the purposes of the ToAA legislation.

Exchange of Information – Common Reporting Standard (CRS2)

The government is publishing a consultation to seek views on the implementation of the OECD amendments to the Common Reporting Standard (CRS2), the international tax transparency regime for the automatic exchange of information on financial accounts.

The consultation also seeks views on two proposed changes to regulations and a potential extension of the CRS to include reporting on UK resident taxpayers by UK financial institutions. The consultation will close on 29 May 2024.

Exchange of Information – Crypto-Asset Reporting Framework (CARF)

The government is publishing a consultation to seek views on the implementation of the OECD’s Crypto-Asset Reporting Framework (CARF), the new international tax transparency regime for the automatic exchange of information on crypto-assets.

The consultation also seeks views on a potential extension of the CARF to include reporting on UK resident taxpayers by UK service providers. The consultation will close on 29 May 2024.

Agricultural Property Relief (APR) for Inheritance Tax

Agricultural property relief from IHT is to be extended from 6 April 2025 to land managed under environmental agreements with the UK government, public bodies, local authorities and approved responsible bodies.