Non-Domicile Taxation: HMRC Listened!

In the dog days of summer HMRC held a number of “listening sessions” for advisers on proposals for taxing UK resident non-domiciled individuals. Surprisingly, these were not just a PR exercise: HMRC listened.

The Budget confirmed that from 6 April 2025:

• Domicile will no longer be relevant for UK taxation and the remittance basis will be abolished;
• New residents will benefit from a Foreign Income and Gains (FIG) exemption of up to four years providing they were non-resident for at least ten consecutive tax years before arrival;
• Settlor-interested offshore trusts will lose protected status, but settlors and beneficiaries can benefit under the FIG rules;
• Inheritance tax will be based on residency with worldwide assets coming within the taxable estate for those who have been resident for 10 or more of the previous 20 tax years.
• However, the ten-year “tail” will be shortened for those that leave within twenty years of arrival to as little as three years for those that leave within 13 years, with transitional rules for those that leave by 5 April 2025.

What’s new:

• Overseas workdays relief (OWR) will align with the new FIG rules, extending to the first four years. Maintaining a designated offshore account will no longer be necessary, but relief will be limited each year to the lower of 30% earnings or £300,000;
• The inheritance tax treatment of excluded property trusts will align with the tax status of the settlor regardless of when property was added. However, transitional arrangements will be available for excluded property added prior to 30 October 2024;
• Rebasing for foreign assets held on or before 5 April 2017 will be extended to assets sold after 5 April 2025 for individuals that:

1. 1. Were not domiciled / deemed-domiciled any time before 6 April 2025; and
   2. Claimed the remittance basis in at least one tax year from 2017/18 to 2024/2025.

• The Temporary Repatriation Facility (TRF) has been extended to three years and provides an opportunity for qualifying individuals to “clean up” their offshore assets for a relatively low cost of 12% in the first two years and 15% in the final year.
• TRF will also be available for:
  1. Non-liquid foreign assets, avoiding the need to liquidate to remit funds;
  2. Remittances that qualified for Business Investment Relief; and
  3. Distributions from offshore trusts within the three-year TRF period.

There is plenty to digest and over 100 pages of draft legislation to examine, but the outlook is much better than many feared.