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New UK Tax Rules

New UK Tax Rules.

Comprehensive Overview of UK Tax Changes for Non-Domiciled Individuals from April 6, 2025

This document signifies a significant shift in the new UK tax rules landscape for non-domiciled individuals residing within the country. The existing remittance basis system, which allowed these individuals to avoid paying tax on foreign income not brought to the UK, will be dismantled. In its place, a new residence-based system will be implemented, fundamentally changing how non-domiciled residents are taxed.

Who Needs to Know the new UK tax Rules?

This information is crucial for non-domiciled individuals currently residing in the UK. Understanding these changes will be essential for accurate tax planning and ensuring compliance with the new regulations.
Tax professionals who advise non-domiciled residents should also be well-versed in these updates to effectively guide their clients through the transition.

Key Changes in the New UK Tax Rules and Their Implications

Farewell Remittance Basis: Effective April 6, 2025, the remittance basis will be abolished. This means all non-domiciled residents will be taxed on their worldwide income and capital gains, regardless of location or whether the funds are brought to the UK. This change brings the UK tax system into closer alignment with other developed nations.
Introducing the 4-Year FIG Regime: A new regime for foreign income and gains (FIG) is being introduced to offer some relief. Individuals who become UK resident after a period of 10 years of non-UK residence can potentially claim this regime. For the initial 4 tax years of UK residency, they can enjoy exemption from tax on their foreign income and gains. Additionally, they can freely bring these funds to the UK without incurring any additional tax charges. This regime simplifies the process compared to the complexities of the remittance basis system.
Simplified Overseas Workday Relief (OWR): The existing OWR program, which offers tax relief on earnings from duties performed outside the UK, will be retained with some modifications. For employees who opt for the new 4-year FIG regime, OWR will be available for the first 3 tax years of UK residency. This provides continued tax relief on foreign earnings, promoting international work opportunities.
Loss of Trust Protections: Previously, non-domiciled individuals could utilize trust structures to shield their foreign income and gains from taxation. However, under the new system, this protection will be largely eliminated for those who do not qualify for the 4-year FIG regime. Income and gains arising within trust structures will now be taxed on the settlor (the person who establishes the trust) on the same basis as UK-domiciled individuals.
Temporary Repatriation Facility (TRF): To ease the transition for individuals who previously used the remittance basis, a temporary relief measure is being introduced. The TRF allows these individuals to repatriate pre-April 6, 2025 foreign income and gains at a reduced tax rate of 12%. This facility is only available for tax years 2025-26 and 2026-27.
Potential Changes to Inheritance Tax (IHT): The government has expressed its intention to move IHT from a domicile-based system to a residence-based system. This would mean non-domiciled residents could be liable for IHT on their worldwide assets. However, this change is subject to consultation and may not be implemented until April 6, 2025 or later.

Additional Considerations

Further details and draft legislation outlining the specifics of these changes will be published later in the year. Individuals and tax professionals are advised to stay informed by consulting these resources.
The IHT consultation will address the design of the new residence-based system and tackle various complex issues, such as transitional provisions, the length of the residence criteria, and the treatment of trust charges.

Conclusion

The upcoming changes to the UK tax system for non-domiciled residents represent a significant shift towards a residence-based approach. Understanding these changes is crucial for non-domiciled individuals and their tax advisors to ensure proper tax planning and compliance. While this summary provides a comprehensive overview, it is essential to refer to official government documents and forthcoming legislation for complete details and eligibility requirements.

To read the full Treasury Article click herehttps://www.gov.uk/government/publications/changes-to-the-taxation-of-non-uk-domiciled-individuals/technical-note-changes-to-the-taxation-of-non-uk-domiciled-individuals

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