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      Kirk Rice Blog

      Changes to the way Non-Doms are Taxed in the UK – Risks and OpportunitiesWritten on May 30, 2024 by Kirk Rice

      In his March Budget, the Chancellor announced a package of changes to how the UK tax system works for people who are not domiciled in the UK (‘non-doms’). These changes will affect anyone who has ever used the ‘remittance basis’ of taxation, where foreign income and gains are taxable only when brought into the UK.

      The announcements present some time-limited tax planning opportunities, which will be very helpful in certain circumstances, but there are also risks to be aware of.

      At this stage, details on changes to the way non-doms will be taxed in the UK are limited, and although the changes take effect in April 2025, we don’t have details on how the rules will work. The fact that there will be a general election between now and April 2025 adds uncertainty. Still, given that the Labour Party had proposed similar reforms, the announcement would likely go ahead even if there were a different government.

      Proposed changes

      • The headline is that non-doms will no longer be able to leave foreign income and gains outside the UK and not pay tax on those amounts.
      • A new regime will exempt foreign income and gains from UK tax for the first four years a person lives here.
      • Inheritance tax rules will change, so they are based on years of residence and non-residence rather than a person’s domicile status.

      Transitional provisions – some opportunities

      For people who have used the remittance basis regime in the past, there are transitional provisions which might be very helpful, even if they no longer use the remittance basis.

      • Temporary repatriation facility – To encourage people to bring money into the UK, foreign income and gains brought to the UK will be taxed at 12%. This will last for two years.
      • Rebasing foreign assets – Foreign assets will be rebased to the April 2019 value, allowing gains made before April 2019 to escape UK tax.
      • First year introductory rate – Finally, for the 2025-56 year only, there will be a 50% exemption on foreign income.

      There is doubt over these opportunities because the Labour Party has said they would not be as generous with the transitional provisions.

      New restrictions

      Some important easements which existed before April 2025 will no longer be available.

      • £2,000 de-minimis exemption – We have not seen confirmation, but this exemption will likely be unavailable after 6 April 2025.
      • Non-resident trusts – Future growth will be subject to income and capital gains tax, although assets settled into trust by a non-domiciled person before April 2025 remain outside the scope of inheritance tax. If action is taken before April 2025, it may be possible to preserve inheritance tax exemptions, and there may still be some benefits in trust structures where the settlor is not also a beneficiary of the trust. However, a new government could change this part of the package.

      Conclusion

      This is all highly uncertain, with lots of details still to come and the possibility that a new government could change the details. All of this suggests that if these changes could affect you, you should contact us now to discuss the impact.

      If you have any questions about how non-doms tax implications, please email info@kirkrice.co.uk to arrange a call with the appropriate specialist.

       

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      Non Domiciled Individuals Factsheet

      Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.

       

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