UK to Abolish the Non-Dom Regime and Move to Residence-Based Tax

The Spring Budget 2024 describes the current rules for non-UK domiciled individuals as outdated and says the replacement will be simpler, fairer and more competitive. HM Treasury published a technical note on the same day setting out how the changes are expected to work.

How the new regime will work

From 6 April 2025, individuals who opt into the new regime will not pay UK tax on foreign income and gains arising in their first four years of UK tax residence, provided they have not been UK tax resident in the previous 10 years. Eligible employees will also be able to claim Overseas Workday Relief for their first three years of tax residence on income from employment duties carried out overseas. The government presents this as a competitive offer to attract international talent.

Transitional arrangements

For existing non-doms who claim the remittance basis, the Budget sets out several transitional measures. They will have the option to rebase the value of capital assets to 5 April 2019, and there will be a temporary 50% exemption for the taxation of foreign income in the first year of the new regime, 2025 to 2026. A two-year Temporary Repatriation Facility will allow individuals who have paid tax on the remittance basis before 6 April 2025 to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.

The government estimates that the overall measure will raise £2.7 billion in 2028 to 2029, and that the repatriation facility will bring an additional £15 billion of foreign income and gains onshore and raise over £1 billion in additional tax receipts.

Inheritance tax and next steps

The government also intends to move inheritance tax to a residence-based regime and will consult on how best to achieve this. It has confirmed that no changes to inheritance tax will take effect before 6 April 2025.

Internationally mobile families and individuals with UK residence and foreign assets should review their position before the new regime begins. Those who have relied on the remittance basis will want to consider the rebasing option and the repatriation facility, and trustees of offshore structures should watch for the detail of the inheritance tax consultation. The changes still require legislation, and the technical note may be updated as engagement with stakeholders continues.

Sources

• GOV.UK: Spring Budget 2024
• GOV.UK: Changes to the taxation of non-UK domiciled individuals