As of 6 April 2025, the UK’s tax landscape has undergone a significant transformation, particularly affecting non-domiciled individuals (“non-doms”). The traditional domicile-based taxation system has been replaced with a residence-based framework, impacting income tax, capital gains tax (CGT), and inheritance tax (IHT).
Key Changes:
1. Income Tax and Capital Gains Tax:
– Arising Basis: All UK residents are now taxed on their worldwide income and gains as they arise.
– Foreign Income and Gains (FIG) Regime: Individuals who become UK residents after being non-resident for at least 10 years can, for their first four years of UK residence, elect to exclude overseas income and gains from UK taxation. These funds can be brought into the UK without additional tax.
– Offshore Bonds: Gains from offshore bonds are excluded from the FIG regime and remain taxable in the UK, even within the initial four-year period. However, time apportionment relief may reduce the taxable amount based on periods of non-residency.
– Transition from Remittance Basis: With the cessation of the remittance basis, previously untaxed foreign income and gains can be repatriated to the UK at reduced tax rates—12% for the first two years and 15% in the third year—under a temporary facility available until 5 April 2028.
2. Inheritance Tax (IHT):
– Long-Term Residence Test. Individuals are deemed long-term residents, and thus subject to IHT on worldwide assets, if they have been UK residents for at least 10 out of the previous 20 tax years.
– IHT Tail Provision: Long-term residents who leave the UK may remain liable for UK IHT on their worldwide assets for up to 10 years post-departure.
Implications for Financial Planning:
These reforms necessitate a thorough review of financial strategies for those affected:
– For New Arrivals: Understanding eligibility and benefits of the FIG regime is crucial to optimise tax efficiency during the initial years of UK residency.
– For Existing Residents: Transitioning from the remittance basis requires careful planning, especially concerning the repatriation of foreign income and gains under the temporary facility.
– For Potential Emigrants: Awareness of the IHT tail provision is essential for those considering leaving the UK, as worldwide assets may remain within the UK IHT net for a decade post-residency.
Given the complexity and potential impact of these changes, seeking professional financial advice is recommended to navigate the new tax environment effectively.