In the spring Budget 2024, the government announced its intention to abolish the concept of domicile for tax purposes, and with it the associated 'remittance basis' rules that were first introduced more than a century ago.
The remittance basis is one of the most complex areas of UK tax law.
In its existing form it offers so called 'non-doms' – ie individuals who are not domiciled in the UK – an optional tax break on their non-UK income and gains, provided they do not remit the funds to the UK.
Non-doms are also able to benefit from an exclusion from UK inheritance tax on their non-UK assets, provided they are not linked to UK residential property.
These tax advantages are mostly lost once a non-dom has been UK resident for 15 out of the previous 20 tax years.
The government’s proposals, set to apply from April 6 2025, will replace this non-dom regime with new residence-based rules.
The new rules will ensure that all UK residents will be subject to UK income tax and UK capital gains tax on their worldwide income and gains.
In addition, UK residents will be subject to IHT on their worldwide assets after a certain period of UK tax residence (with 10 tax years being the current suggestion).
However, in an attempt to attract individuals to come to the UK from overseas – for example to invest, work or study – the government has proposed a tax exemption on an individual’s foreign income and gains in their first four tax years of UK tax residence following a period of at least 10 tax years overseas (the 'four-year exemption').
The government also intends to introduce a temporary 12 per cent tax rate on remittances to the UK of foreign income and gains that have previously been sheltered from UK tax under the remittance basis.
Other proposals have been made, such as removing certain tax protections for overseas trusts.
As the abolition of the non-dom regime was one of Labour’s key tax policies, it is not surprising that they have generally supported these changes.
However, they are opposed to a transitional relief that would exempt 50 per cent of an individual’s foreign income from UK tax in 2025-26 for those that are moving from the remittance basis of taxation to the new rules.
Most significantly, in contrast to the government, Labour has also pledged to scrap the current IHT protections that can apply to existing trusts settled by non-doms, rather than simply removing these protections for new trusts settled on or after April 6 2025.
Inevitably, as with any rule changes, there will be winners and losers.
Winners
Short-term migrants: Individuals who want to come to the UK for no more than four tax years will benefit from the four-year exemption without having to keep their foreign income and gains outside the UK, as they would under the existing remittance basis rules.
