Abolition of non-dom status – what next? - Partners Wealth Management

We previously discussed the taxation changes initially proposed by the previous Conservative government, and noted that the incoming Labour government were likely to make adjustments (see our article here). We have now had a glimpse of these potential changes and expect more details in the Budget scheduled for Wednesday, 30 October 2024.

As a reminder, historically individuals that were resident in the UK but not considered ‘domiciled’ in the UK, could benefit from a special tax regime. That regime was designed to encourage non-domiciled individuals to come to the UK, by allowing them to keep non-UK assets offshore and not pay UK tax on them, unless brought into the UK. Those rules will end in April 2025 and a new regime focused on residence will come into effect.

UK residence for tax purposes is a well-established concept, based on a combination of the number of days spent in the UK and the number of ‘ties’ to the UK (please see our guide on the Statutory Residence Test). For some people, UK presence before being considered UK tax resident could be as little as 16 days. For others, it is more generous and might simply be a matter of not spending more than six months here.

For those concerned about what their position might be for the current tax year 2024/25, the good news is that according to the policy paper published by the government on 29 July 2024, no changes will be put into effect before the new tax year commences in April 2025.

We have considered how the proposed Foreign Income and Gain (FIG) regime will impact three categories of people:

those who have been in the UK for a long time and have legacy funds offshore;
those who have been in the UK for a relatively short period of time and may still benefit under the new regime; and
those who are looking at where to go next and may be considering the UK.

For the first category, long-term residents who were previously deemed non-domiciled have either stopped claiming the remittance basis, or have paid the remittance basis charge (up to £70,000 per year, per individual). These individuals will now need to assess the impact on both their historical income and capital gains.

The policy paper states that there will be some transitional arrangements for those who previously used the remittance basis, including a rebasing of foreign capital assets for Capital Gains Tax (CGT) purposes and a Temporary Repatriation Facility (TRF). The date of the rebasing and the actual rate that will apply to repatriations is yet unknown. The current position from the Treasury (as stated in the policy paper) is: “The rate and the length of time that the TRF will be available will be set to make use as attractive as possible” and the rebasing date will be set out in the Budget.

Due to the proposed changes to Inheritance Tax (IHT), many non-domiciled individuals have used Excluded Property Trusts (EPT) to hold their assets offshore, excluding them from UK IHT. The government intends to bring in new legislation changing the way trusts, particularly EPTs, are taxed under IHT. Many media reports suggest this may be a “deal breaker” as unravelling such trusts can be onerous and complex, potentially prompting individuals to leave the UK altogether. The government has indicated there will be no further consultations, instead relying on feedback from earlier sessions following the Spring Budget which were cut short by snap elections. Partner Adrien Landreau attended one of these sessions and noted a lack of interaction with HMRC as the civil servants were there only to listen. We hope for deeper interaction with experts before legislation is enacted.

Individuals who have been here for less than four years may still benefit from the new regime from 2025/26 – including pre-FIG regime. It is unlikely that they have established EPTs or will be significantly impacted by with the long-term changes to IHT, but it may still be of concern for some.

For those planning to move to the UK or considering it, a form of Overseas Workday Relief should still be available. This is appealing as tax is only paid on the proportion of days worked and spent in the UK. Full current details can be found here in our guide here.

As the FIG regime is based on residence, it abolishes the concept of remittance. This will simplify many practical aspects compared to before, including easier banking arrangements and less need to segregate portfolios. For new arrivals, the headline offer to remove tax on foreign income and gains for four years is attractive.

As always, the details are crucial and already several questions come to mind:

Will the FIG regime be available for British long-term expats on their return when previously Resident Non-Domiciled (RND) status was not accessible?
How will the new proposition compare to those of our immediate neighbours, such as France, Italy, Spain, Portugal, which have specific arrangements to attract wealthy individuals?
Will the 10-year trail on IHT be problematic for countries without specific provisions for IHT in their double tax treaties?
With the discontinuation of investor visas, will there be an alternative for wealthy non-Brits who wish to retire in the UK ?

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