Last week’s Spring Budget brought forward significant changes impacting non-domiciled individuals. Jeremy Hunt unveiled new tax rules, signalling a departure from the existing framework. Below is a breakdown of the key points:

Replacement of Non-UK Domicile Tax Rules:

The Chancellor proposes to replace the current non-UK domicile tax rules. Introducing a new residence-based regime, effective as of 6 April 2025. This shift aims to simplify the tax system and ensure fairness.

Four-Year Foreign Income and Gains (FIG) Regime:

Under the new regime, individuals who become UK residents after 10 years of non-UK residence can opt into a four-year FIG regime. During this period, they won’t pay tax on foreign income and gains, providing a window of opportunity for tax planning and asset management.

Transitional Arrangements:

Existing non-domiciled individuals can benefit from transitional arrangements, including options to rebase capital assets, temporary exemptions for foreign income taxation, and a repatriation facility for previously accrued foreign income and gains.

Changes to Overseas Workday Relief (OWR):

Eligibility for OWR will now be based on an employee’s residence and their choice to use the new FIG regime, effective from 6 April 2025. This aligns with the broader shift towards residence-based taxation.

Taxation of Non-Resident Trust Structures:

From 6 April 2025, income and gains from non-resident trust structures will be taxed on the settlor or transferor, akin to UK-domiciled individuals. This represents a significant change in the taxation of offshore trusts.

Impact on Inheritance Tax (IHT):

The government intends to transition IHT to a residence-based system effective 6 April 2025. This will affect both existing and new trusts, signalling a fundamental shift in the treatment of non-UK property settled by non-UK domiciled individuals.

These changes signify a shift away from the favourable tax treatment that wealthy non-domiciled individuals have long experienced in the UK. While the new regime offers a grace period before tax on worldwide assets becomes due, it may prompt some non-doms to reconsider their residency status. For those opting to stay, seeking advice on trust structuring and tax planning will be essential to navigate the evolving landscape effectively.

At Whittaker and Co, we’re committed to helping our clients understand and adapt to these changes. Contact us to discuss how these developments may impact your financial strategies and planning.

For further details regarding the subject, follow this link – Spring Budget 2024: Non-UK domiciled individuals policy summary – GOV.UK (www.gov.uk)