Budget 2024: What now for non-doms?

These are significant changes for non-doms who will need to pay UK tax on all their worldwide income and gains arising after 5 April 2025. The changes are also relevant for UK domiciled individuals living overseas (i.e. ‘Brits abroad’).

Here, Jim Thomson summarises the changes, what they mean in practice and action points that might be considered.

What were the non-dom rules?

“Non-dom” describes a UK resident whose permanent home – or domicile – for tax purposes is outside the UK.

It refers to a person’s tax status, and has nothing to do with their nationality, citizenship or resident status – although it can be affected by these factors.

A non-dom only pays UK tax on the money they earn in the UK. They do not have to pay tax to the UK government on money made elsewhere in the world (unless they pay that money into a UK bank account).

What is changing?

1. New residency based regime – The outgoing remittance basis of taxation, is based on domicile status and the new tax regime will be based on residence. The new regime will provide 100% relief on foreign income and gains (FIG) including in trusts, for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the ten consecutive years prior to their arrival. Such FIGs can then be brought into the UK at any time without an additional charge to tax but will require significant disclosure to HMRC.
2. Non-UK resident trusts – The protection from tax on foreign income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four-year foreign income and gains (FIG) regime.
3. Inheritance tax – From 6 April 2025, an individual’s worldwide estate (and any assets in 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”). Meaning non-UK property will be brought into UK Inheritance Tax for individuals and trusts.
4. Overseas Workday Relief (OWR) – OWR allows individuals to shelter the proportion of their earnings that relates to overseas employment duties from UK tax. From 6 April 2025, eligibility for OWR will be determined by an individual’s residency and not their domicile (including those who qualify for the four-year foreign income and gains (FIG) regime). Individuals can still shelter a proportion of their overseas employment income from UK taxation, however, the relief will be subject to an ‘annual financial limit’ for each year (being the lower of £300,000 or 30% of an individual’s total employment income). The good news is that this overseas income no longer needs to be kept overseas and can be remitted to the UK without a tax charge.

Transition measures for non-UK domiciled individuals

There will be transitional rules for non-UK domiciled individuals already living in the UK, who have previously been assessed to tax under the ‘old’ regime:

• Temporary Repatriation Facility (TRF) – The TRF will be available for individuals who have previously claimed the remittance basis. They will be able to designate and remit, at a reduced rate, foreign income and gains that arose prior to the changes. 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.
• Gains on foreign assets – Any foreign income and gains that arose on or before 5 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK under the current rules. This includes remittances by those who are eligible for the new four-year foreign income and gains regime. Transitionally, for CGT purposes, current and past remittance basis users will be able to rebase foreign assets they held on 5 April 2017 to their value at that date when they dispose of them. To qualify: The individual must have not been UK domiciled or deemed UK domiciled at any time prior to 6 April 2025, and must have claimed the remittance basis for at least one year between 2017/18 and 2024/25. The asset must have been non-UK situated at all times between 6 March 2024 and 5 April 2025 (subject to limited exceptions).

For those returning to the UK

For those born in the UK to British parents and returning to the UK after a long spell abroad, the new residency-based regime may be favourable compared with the current, domicile-based one.

That is because the new residency-based regime focuses on an individual’s physical presence in the UK rather than their global domicile or long-term ties to the country.

Under the previous domicile-based system, individuals were taxed based on their domicile status, which often led to complicated tax implications for those who had lived abroad for extended periods but maintained ties to the UK.

The new system, however, looks primarily at residency, meaning that individuals who return to the UK after living overseas may face fewer tax burdens, especially if their ties to the UK are limited and they have been outside the country for a significant time.

This shift could result in more predictable and potentially lower tax liabilities for individuals coming back to the UK, particularly those with foreign income or assets. The residency-based approach makes it clearer how long one needs to be in the UK before being classified as a tax resident, which can provide greater certainty and reduce the complexity of tax planning for those returning to the country. It is, however, important to note that the new regime still requires careful attention to the details of residency rules and the specific tax treatments that apply to foreign income and capital gains.

As a result, this change may make the UK a more attractive destination for individuals who have lived abroad but wish to return without incurring the high tax obligations that could arise under the previous domicile-based system.

Action points and considerations

Depending on a taxpayer’s individual circumstances and tax profile, there are various options to consider, some of which we have noted below:

• Compliance under the new regime is expected to be onerous, and those with overseas exposure will need to keep detailed financial records and be ready to deal with additional UK compliance and reporting.
• For individuals who have already settled assets in trust, the TRF may provide an opportunity to unwind existing structures at a relatively low tax rate, enabling them to consider more favourable, traditional UK tax planning options, such as family investment companies.
• For non-doms and individuals moving to the UK for work, the new regime will carry the risk of bringing them into the IHT (Inheritance Tax) regime.