Autumn Budget 2024: Changes to the non-dom regime

Many internationally mobile people, who have connections to the UK, will have been waiting for today’s Budget announcements with some trepidation. 

The government has been vocal in its commitment to abolish the remittance basis of taxation (the favourable taxation regime available to UK tax residents who are domiciled outside the UK (so called “non-doms”)) and to remove the inheritance tax benefits of trusts established by non-doms. 

The Treasury’s newly published guidance makes clear that these changes are intended to be tightly drafted and difficult to plan around.

A (very) brief summary of the key changes includes:

1. From 6 April 2025, a 4-year foreign income and gains (FIG) regime will replace the current remittance basis of taxation. The FIG regime grants 100% relief on all non-UK income and gains (including in trust) that arise in the first four years of UK tax residence, after a period of at least 10 years’ non-tax residence. Such FIGs can then be brought into the UK at any time without an additional charge to tax. Claiming tax relief under the FIG regime will come at the expense of significant disclosure to HMRC.
   
   
2. A Temporary Repatriation Facility (TRF) will be available to those who have previously been remittance basis users and is designed to encourage the remittance of previously untaxed income and gains, including those arising to trustees. The TRF will be available from 6 April 2025 to 5 April 2028; the rate of tax on remittances will be 12% in 2025/26 and 2026/27, rising to 15% in 2027/28. 
   
   
3. The income and gains of settlor interested non-UK resident trusts will be taxable as they arise for any year in which the settlor is UK tax resident (if the settlor does not qualify for the four-year FIG regime).
   
   
4. From 6 April 2025, an individual’s worldwide estate (and any assets they have settled on trust) will be within the scope of UK inheritance tax if they have been UK tax resident for 10 or more of the previous 20 years (“long term residents”). The length of time long term residents remain subject to worldwide inheritance tax after ceasing UK tax residence (sometimes called the “IHT tail”) depends upon how long they have been UK tax resident.
    
5. The assets of trusts settled by long term residents who fall within the scope of worldwide IHT will fall within the relevant property regime, regardless of their tax status when the assets were settled and regardless of whether or not they are a beneficiary of the trust. For trusts where the settlor retains an interest, the trust assets will fall within the settlor’s estate for IHT purposes if he/she is a long term resident at that date of his/her death. In short, the IHT status of assets held in trust will flex over time with the status of the settlor. It is no longer set in stone. Note there are concessions for existing trusts created before 30 October 2024. Non-UK assets that have already been settled on such trusts will not form part of the settlor’s estate for IHT purposes on their death, but will still fall within the relevant property regime once the settlor is a long term resident. 

There are undoubtedly many high net worth and international families who are considering whether the UK remains the right place for them. However, as is the case under any taxation regime, there are opportunities for some, and options for everyone. 

Depending on a taxpayer’s individual circumstances and tax profile, mitigation options will vary. 

For existing long-term residents of the UK who have already settled assets on trust, the TRF may allow them to collapse existing structures at a comparatively low rate of tax and they may then decide to explore more traditional UK tax planning structures such as family investment companies. 

People who were born in the UK to British parents, and who return to the UK after a long spell abroad, may find they have the ability to benefit from a favourable tax regime from April 2025 compared with the current, domicile based one. 

The UK will be an attractive destination for inpatriates looking to realise significant gains or large income returns on eg a business restructuring.

Clients should be aware that amongst the opportunities, there are traps for both inpatriates and UK domiciliaries under the new IHT regime. Engaging with their advisers early will, therefore, be more important than ever.

Finally, it's clear is that compliance under the new regime will be onerous. Offshore trustees will need to ensure they have detailed financial records and be ready to deal with additional UK compliance, and taxpayers will need to be in contact with their accountants well in advance of reporting deadlines.