Foreign domiciled individuals
It was the Labour Party’s idea to abolish ‘non-dom’ status, so it is unsurprising that Rachel Reeves is taking forward (with some modifications) the principal changes outlined by Jeremy Hunt in the March 2024 Budget. These changes are complex and can only be briefly summarised here; anyone who is or may be affected by them should take detailed advice.
Abolition of remittance basis
The Chancellor confirmed that, from 6 April 2025, those who are resident in the UK but domiciled overseas (broadly, those whose natural or permanent home is outside the UK) will no longer have access to the ‘remittance basis’ of taxation, which up to now has allowed them to elect to not be taxed in the UK on foreign income and gains if they leave the money overseas.
New basis of taxation
The new regime will be known as the FIG (foreign income and gains) regime. UK residents will be taxable on their worldwide income and gains, regardless of whether they are remitted to the UK. However, new arrivals will not be taxed on foreign income and gains for their first 4 years of residence, if they have not been UK resident in the previous 10 years.
There are transitional rules to deal with people who were taxed on the remittance basis before 6 April 2025 who have unremitted income and gains, and the removal of some of the protection from tax that has been available using certain types of trust. For the first three years of the new rules, a reduced rate will apply to people bringing previously unremitted income and gains to the UK – they will pay tax, but they will then have free access to the money.
CGT rebasing
As a transitional provision, those who have claimed remittance basis in the past will, for CGT purposes, be able to rebase the CGT cost of any foreign assets that they held on 5 April 2017 to their value at that date. In some cases, this will significantly reduce the CGT liability on a disposal from 2025/26 onwards.
Other aspects
There are also significant changes to the assets that will be within charge to IHT for those previously regarded as foreign domiciled, and to Overseas Workday Relief that can exempt them from UK tax on earnings derived from non-UK duties.