In her Autumn 2024 Budget, Chancellor Rachel Reeves upheld most of Jeremy Hunt’s proposed changes to the non-dom tax regime. This signals a significant shift in how foreign income and assets are taxed for non-doms.
The current non-dom tax regime
Currently, non-UK domiciled individuals who are tax-resident in the UK can choose to pay UK tax only on the foreign income or gains they bring into the UK.
Known as the “remittance basis,” this option allows non-doms to keep foreign income and gains outside the scope of UK tax as long as they remain outside the country.
This remittance basis has been available to non-doms for up to 15 years, with a charge applying after the seventh year. However, this arrangement will end on 6 April 2025, when a new Foreign Income and Gains (FIG) tax regime will take effect.
The New Foreign Income and Gains (FIG) Tax Regime
Under the new FIG regime, non-doms who have not been UK residents for any of the previous ten consecutive years can benefit from a full exemption on their foreign income and gains (including non-UK trust distributions) for the first four years after becoming UK residents. This grace period allows them to adjust financially without immediate tax liabilities on worldwide income.
After these four years, non-doms will become fully taxable in the UK on all income and gains, regardless of where they are sourced. Residency status under the Statutory Residence Test (introduced in 2013) will determine eligibility for the FIG regime with ‘split’ years counting as full UK tax years.
The FIG regime is optional. If it applies, you lose your personal allowances and capital gains tax annual exempt amount. If you wish it to apply, however, a claim must be made each year.
Claims to relieve foreign income and capital gains are made separately but must be quantified on tax returns. Those meeting the criteria, but only UK tax resident from 2022/23, can claim the FIG regime for the remainder of their first four years’ residency in the UK.
Changes to Income and Capital Gains Tax
The previous government’s proposal for a 50% reduction in tax on foreign income for the first year of the new FIG regime will not be implemented. Previous proposals to extend the four-year regime to UK investment income do not appear in draft legislation either.
Those who currently or previously benefited from the remittance basis will be able to “rebase” their personally held foreign assets to the value as of 5 April 2017. This is provided they were held then and meet certain conditions when disposing of these assets.
Inheritance Tax Reform
Under the new rules, inheritance tax (IHT) will also shift to a residence-based system. From 6 April 2025, individuals who have been UK residents for ten out of the past 20 tax years will face IHT exposure on non-UK assets, which was not previously the case. This worldwide basis will continue after leaving the UK for three to ten years, depending on how long the individual was a UK resident. Furthermore, non-UK assets held within trusts established by long-term UK residents will also fall under UK IHT.
Repatriation and Overseas Workday Relief (OWR)
Currently, OWR offers UK-resident, non-UK domiciled employees relief on foreign earnings related to days worked outside the UK, provided this income is kept offshore. Currently available for three years, this relief will extend to four years starting in April 2025.
Under the new rules, non-dom employees no longer need to keep their foreign income offshore to qualify. Additionally, OWR claims will be capped at the lower of £300,000 or 30% of net employment income annually, while eligibility will depend on the individual’s residence status, not domicile. The claim for OWR is separate from any claim for the FIG regime to apply.
The Temporary Repatriation Facility will also extend to offshore structures, simplifying some of the complexities of the mixed fund rules. Employers will no longer need to make separate applications to HMRC to allocate PAYE, which has often caused administrative delays and potential cash flow issues due to overpaid UK tax.
Other Key Considerations
- Eligibility for OWR: Individuals must qualify under the FIG regime to claim OWR, with a ten-year period of non-UK residence required to establish eligibility.
- Trailing Income: Foreign income earned before 6 April 2025 but paid after will continue to be taxed under the remittance basis.
- Transitional Arrangements: Non-doms currently using OWR may qualify for transitional arrangements as the new rules come into effect, reducing potential disruptions.
- Temporary Repatriation Facility: Foreign income or gains previously untaxed in the UK can be remitted at preferential tax rates of 12% in the first two years and 15% in the final year.
Implications of the New OWR Rules
The updated OWR rules may simplify the process for non-doms who frequently work abroad by removing the need for offshore bank account structures, which are currently used to maintain eligibility. Additionally, the removal of a separate application to HMRC for PAYE adjustments is expected to benefit both employers and employees by eliminating delays in tax apportionment.
While the extended OWR period may offer flexibility, the cap on relief and the requirement for a ten-year absence to requalify could hinder frequent expatriates or global companies that move staff to the UK on short-term assignments. These businesses may find that the loss of full OWR benefits impacts the cost of maintaining a UK presence.
The legislation regarding this is still in draft form and may be subject to change.
Need assistance?
If you are a non-domiciled individual or an employer with non-dom employees, these changes may have significant implications but there is some time to plan or take advantage of the current regime.
For advice on managing your foreign income, investments, and compliance with the new tax rules, please reach out to your Shipleys advisor or one of our specialists on this page. We can help you navigate these changes and plan effectively for the future.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.
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Related Resources
Chancellor’s Budget Summary – October 2024
