An Overview of the Spring Budget’s impact on Non-Domicile Tax Regime

For a Budget, we anticipated changes to the Inheritance Tax; we actually received a complete overhaul of the non-domicile tax regime. This will be good news to some and bad news to others.

Whilst the existing rules allow individuals to shelter non-UK income and gains outside of the UK for up to 15 years, these funds face taxation in the UK if they are ever brought in. This method of taxation is only available to individuals who are domiciled outside of the UK. Domicile is a common law concept with a different definition depending on which jurisdiction you are considering. Therefore, moving away from the concept of domicile will no doubt make things clearer for taxpayers as we will be under a facts-based system.  

What has changed for non-UK residents?

Under the new rules proposed, anyone who has been a non-UK resident for at least ten years and arrives in the UK may pay no UK tax on their foreign income and gains (FIG) in the first four years of residence. The individual is not required to have never lived in the UK before.

In the UK, tax residency is determined by the Statutory Residence Tax (SRT). This is a facts-based test determined by your days in the UK and your ties to the UK. It has existed since 2013 and brings certainty to globally mobile individuals.

In the first four years of UK residency, arrivals can elect, in exchange for their personal allowance and the annual exemption for CGT, to pay no tax on their non-UK income and gains. In contrast to the current system, these funds may be brought into the UK without further taxes.

This system will be available from 6 April 2025. Specifically, to anyone who has been resident for less than four tax years as of 6 April 2025 and was a non-UK tax resident for the ten years preceding these four.

This proposal comes with a host of transitional rules. This includes only 50% of the foreign income from users of the remittance basis being taxed in 2025/26; the opportunity to rebase assets to their market value is April 2019. In addition, the ‘Temporary Repatriation Facility’ (TRF) will be introduced. This will see a 12% tax rate apply to remittances of previously untaxed income in 2025/26 and 2026/27. The key will be in the legislation we are waiting for, as this should provide the details we need to plan the next steps for the clients affected.

What about inheritance tax?

We have been waiting for the details of the proposed changes to the inheritance tax. The proposed changes will be discussed with the relevant professional bodies and other parties before being confirmed. The proposal is that domicile will no longer influence an individual’s exposure to IHT. Instead, after ten years of residency, an individual will be subject to IHT on their worldwide estate. This would continue to apply for ten years after ceasing to be a resident.

These changes would limit the time the existing non-domiciled community could spend in the UK to 9 years without becoming exposed to IHT on their worldwide assets. This is down from 14 years as it currently applies. However, there is a great opportunity here for UK individuals who have retired abroad.

How can we help?

Overall, domicile as a concept is difficult to change. Therefore, many UK persons living abroad for years but keeping roots and ties to the UK will continue to pay IHT on their worldwide estate. Even if they have not been resident in the UK for decades. In contrast, these new rules could cause many estates to cease to be subject to IHT. For example, if the individual has been living abroad for an extended period.

If you are concerned about the changes or want to know how they may affect any of your plans, please get in touch with us.