The current remittance basis tax regime will be replaced by a residence based regime from 6 April 2025.
Foreign Income And Gains
Existing non domiciled individuals who have been resident in the UK for less than 4 years will be able to take advantage of the new scheme which provides for tax free foreign income and gains for up to the first four years of residence.
Longer term UK residents (greater than four years) will have to pay tax on all foreign income and gains from 6 April 2025. However, transitional arrangements will mean that:
- For the 2025/26 tax year they will only pay UK tax on 50% of their foreign income arising in that year;
- Foreign income and gains arising before 6 April 2025 will be able to be remitted to the UK in the 2025/26 and 2026/27 tax years at a temporary 12% tax rate;
- Foreign assets will be able to be re-based to 5 April 2019 value for disposals after 6 April 2025
- Foreign income and gains arising on non-resident settlor interested trusts will not be taxed unless the income and or gains are paid to UK residents.
Overseas Workdays Relief
Non-UK domiciled individuals are currently able to claim tax relief for earnings from duties overseas for up to three years of UK residence – subject to not remitting the funds to the UK.
The Government is to consult on reforming the current regime. However, it has been confirmed that the basic relief will remain, but the restriction on remittance will be removed. This will be a welcome simplification for many.
Inheritance Tax
The Government will consult on changes to the inheritance tax regime in light of removing domicile and changing to a residence based regime.
However, to provide certainty, they have confirmed that the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change.
Summary
It is clear that the Government’s intention is to encourage capital inflows into the UK rather than provide disincentives to do so.
However, many long term non domiciled UK residents will be significantly impacted from 6 April 2025 – although the 50% restriction on income and gains subject to tax for that year will be a welcome relief.
Less clear is the position around inheritance tax. We would welcome clarification in this regard at the earliest opportunity.
Richard Feakins, Director of CST London, recently contributed to an article on the Australian Financial Review – UK’s new tax slug could force expat Aussies home – read Richard’s contribution here.