The government has published a policy paper outlining how it plans to remove the concept of domicile status from the tax system and implement a new residence-based regime.
In a policy paper published yesterday (31 July) it said: “The government is committed to addressing unfairness in the tax system, so that everyone who is long-term resident in the UK pays their taxes here.”
As a result, it will remove the status of domicile status from the tax system and implement a new residence-based regime which is internationally competitive and focused on attracting the best talent and investment to the UK.
The government said it will implement the four-year foreign income and gains (FIG) regime announced by the previous government at the Spring Budget.
However, this approach left “several advantages” for existing non-doms, which it is committed to ending.
From the 6 April 2025, it will introduce an internationally competitive residence-based regime.
This will provide 100% relief on FIG for new arrivals to the UK in their first four years of tax residence, as long as they have not been UK tax resident in any of the 10 consecutive years prior to their arrival.
From the same date, the protection from tax on income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four-year FIG regime.
The government also intends to conduct a review of offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation.
UK resident individuals who are ineligible for the four-year FIG regime, or who choose not to make a claim for a tax year, will be subject to Capital Gains Tax (CGT) on foreign gains in the normal way.
A new Temporary Repatriation Facility (TRF) will be available for individuals also, who have been taxed on the remittance basis. Individuals that have previously claimed the remittance basis will be able to remit FIG that arose prior to 6 April 2025 and pay a reduced tax rate on the remittance for a limited time period after the remittance basis has ended.
Inheritance tax (IHT) is currently a domicile-based system. The government intends to replace this with a new residence-based system from 6 April 2025.This will affect the scope of property brought into UK IHT for individuals and trusts.
Reacting to the news, Forvis Mazars UK partner Paul Barham said: “We are now starting to see the true colour of Labour’s thinking on non-doms with some much-needed clarity on the direction of travel.
“The latest guidance gives many of those considering when and whether to crystallise non-UK income and gains this tax year or next and when and whether to claim the remittance basis this year, the detail they need to start to press ahead plans.
“However, for those with non-UK trust structures it still hangs in the balance and they will be left with a very short decision-making window.
“Now is the time to get ahead and review current structures, their purposes and how they should be used moving forward so that action can be taken swiftly once the detail is finally disclosed.”
Let’s see how the non-doms take it. Will they just either not come here or will those who are here already, just move away? The UK is no longer the attractive place for business it once was. Due no doubt to the regulatory burden. Evidenced now by some back pedalling, but is that too late?