With the change in government and the highly anticipated Autumn budget last week, we can finally confirm the long-anticipated abolishment of the non-domicile tax regime and the change in the tax laws that accompany this.
From 6 April 2025, the UK is changing to a residency-based tax system, meaning the tax saving advantages on foreign income that have previously applied to non-domiciled individuals will no longer apply. Essentially, all UK tax residents will now be taxed in the same manner and under the same laws and regulations.
There are however a few transitional rules to encourage non-domiciled individuals to bring their foreign income into the UK as well as additional relief for individuals moving to the UK in the future.
Temporary Repatriation Facility (TRF)
Individuals who have previously claimed the remittance basis rules to have their foreign income only taxed in the UK when the funds are brought into the UK will now have the option to bring these funds into the UK at a reduced rate of tax.
The facility is available for three tax years from the 2025/26 tax year to the 2027/28 tax year at a tax rate of 12% for the first two years and 15% for the third year, on income or gains that arose prior to 6 April 2025.
The tax charge is raised in the year in which the designation is made not when the funds are remitted meaning one can make the designation now and then remit the funds any time in the future without any further tax charge being raised. One must make a designation before remitting the funds or the TRF will not apply and the funds remitted will be taxed at the normal marginal tax rates.
It is important to note that designated amounts are treated as being net of tax thus any overseas tax paid on this foreign income previously is removed before the designated amount. Any remittance basis charges that were paid will however not be allowed as a tax credit against the TRF tax payable in the UK.
This provides a great opportunity to bring funds into the UK for any individuals who previously elected not to do so due to the high tax charges that would have previously accompanied such a transfer.
Foreign Income and Gains Regime (FIG)
This applies to new tax residents in the UK from 6 April 2025 or individuals who have been tax residents in the UK for less than four years under the statutory residency tests.
The FIG regime allows for a full exemption (100%) on foreign income and gains for new arrivals in the UK for their first four years of tax residency. However, there are certain foreign income and gains that the exemption may not apply to.
If you elect to apply the FIG regime, you will lose your entitlement to your Personal Allowance and Annual Exempt Amont for capital gains purposes in each year that you decide to apply the FIG regime.
This is especially helpful to new tax residents who have overseas assets that they cannot dispose of prior to moving to the UK and require some time before being able to dispose of them or if they have foreign income that they will continue to earn in the future.
The above transitional rules provide great potential tax savings to help you adjust to the new tax system in the UK but there are certain requirements that need to be met.
Book a call with us here to find out more. There is nothing better than us running a number of scenarios for you to see what decisions result in the best outcome for you.