The budget announcement on March 6, 2024, has unveiled the third major overhaul of the regime for taxation of foreign domiciliaries since 2008.
This latest change, to be implemented from the 2025/26 tax year, marks a significant shift as foreign domiciliaries will no longer benefit from the remittance basis, and offshore trusts settled by them will no longer be protected.
This leaves a critical question regarding the treatment of foreign income and gains (FIG) that were subject to the remittance basis before the 2025/26 tax year. The government has provided some clarity on the transitional provisions that will be put in place to address this issue.
According to the budget announcement and the summary published by the government on its website, a new residence-based regime will replace the current one in April 2025. This new regime will bring about several changes, including full tax relief on foreign income and gains for new arrivals to the UK for the first four years, after which they will be taxed as UK-domiciled.
For current non-doms, there will be specific transitional arrangements:
- A temporary 50% reduction in the personal foreign income subject to tax in 2025-26 for non-doms who will lose access to the remittance basis on 6 April 2025 and are not eligible for the new 4-year FIG exemption regime.
- Re-basing of capital assets to 5 April 2019 levels for disposals that take place after 6 April 2025 for current non-doms who have claimed the remittance basis. This allows affected individuals to be taxed only on capital gains since that date when foreign assets are disposed of.
- Non-doms will be able to remit foreign income and gains that arose before 6 April 2025 to the UK at a rate of 12% under a new Temporary Repatriation Facility in the tax years 2025-26 and 2026-27.
- While the government is removing protections on non-resident trusts for all new FIG that arise within them after 6 April 2025, FIG that arose in protected non-resident trusts before 6 April 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than 4 years.
These transitional provisions aim to provide a smooth transition for current non-doms while ensuring that the new regime is implemented effectively. As always, individuals affected by these changes are advised to seek professional advice to understand the full implications of their tax affairs.
To know more don’t hesitate to get in touch with our office in London.
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