Panellists

• Stephen Relf, Technical Manager, Tax, ICAEW
• Katherine Ford, Technical Manager, Tax, ICAEW
• Adelle Greenwood, Technical Manager, Tax, ICAEW

Producer

Ed Adams

Transcript

Stephen Relf: Hello and welcome to The Tax Track, the podcast series from ICAEW, where we explore the latest developments in the world of tax. Earlier this year, on 6 April 2025, the longstanding rules for non-UK domiciled individuals – referred to as non-doms – were abolished and replaced with a new regime based on residence. In this episode, we’ll get behind the headlines and consider the pros and cons of the new rules.

Adelle Greenwood: Not needing to pay into overseas bank accounts is a huge benefit for both employees and employers going forward.

SR: And we’ll identify some of the key points you need to be aware of when advising clients.

Katherine Ford: I think the new regime is also more complicated because it actually requires three separate claims, plus one election, depending on what sources of income and gains you have.

SR: I’m Stephen Relf, Technical Manager for Tax at ICAEW. Today I’m joined by two colleagues from the tax team: Katherine Ford, Technical Manager for Personal Taxes, and Adelle Greenwood, Technical Manager for Employment Taxes and National Insurance Contributions. The changes affecting non-doms have been in the news for some time. Although enacted earlier this year, they were proposed by the then Conservative government in spring 2024 and they had been a Labour Party ambition for some time before that. The headlines have been and continue to be gloomy, predicting a fall in non-dom numbers, and there is some support for this in figures prepared by the Office for Budget Responsibility, which assume that 12% of non-doms without trusts and 25% of those with trusts will migrate in response to the measure. Katherine, how big a deal is this?

KF: Well, if you think that domicile has existed as a concept in tax law for over 200 years, and we’ve had the remittance basis in various forms for over 100 years, this is a pretty significant change for those with overseas income and gains.

SR: Given that this has been around for such a long time, why are we looking at changing it now?

KF: I think there was a perception in the public and in the press that this was a bit of an unfair system that favoured non-doms. It was a legitimate regime that they were using, but there were some high-profile instances where it was seen as an unfair system, and hopefully the new system then does away with that.

SR: OK, so we’re going to run through today how the new regime looks. But can you give us just some headline impressions?

KF: Previously the taxation of foreign income and gains depended on a person’s domicile status. The concept of domicile has now been completely abolished across the taxes, so we are now relying on the statutory residency test. Everything is based off that. And things to be aware of on the residency test are that years of split-year treatment do count as a full year for all these tests that we’re going to cover, as do people who are dual residents but overall nonresident in the UK under a double tax agreement. So, the new rules are that for what are termed newly resident people – that is those in their first four years of UK residency who have not been a UK resident in any of the 10 previous tax years – they can remit their foreign income and gains (the acronym used is FIG) arising in their first four years of residency, tax free. They don’t have to remit at the time the income arises, they can remit later. As was the case under the old rules, if you’re going to use the FIG regime, you will lose your personal allowance and your capital gains tax annual exemption for any year where you do claim it.

SR: OK, so you mentioned remit. Is that when you bring the money into the country?

KF: Correct. People bring the proceeds or interest into the UK, there are rules for determining what is a remittance and which type of income or gain has been remitted first. The rules are quite broad, so not for the faint hearted, because they can include things like indirect remittances by a spouse or paying off expenditure on a UK credit card using foreign funds.

SR: What happens if you’re not eligible to use FIG?

KF: FIG is quite a short regime, particularly because the year of arrival may count as a full year. So, anybody that’s not eligible from 6 April 2025, that oversees income and gains will be taxed on a worldwide basis as and when they arise, so it’s a big change there. In terms of income and gains that arose up to 5 April 2025, we are still under the old rules, so if remittance basis was claimed in those years, those remittances will still need to be taxed as and when they are brought to the UK.

SR: And is there any sort of transitional arrangement that would benefit people?

KF: Yeah, we have the temporary repatriation facility known as TRF, and that is a facility that’s running for a fixed period of three tax years, starting from 6 April 2025 and running until 5 April 2028. For the first two years, the foreign income and gains that haven’t yet been taxed in the UK can be taxed at a rate of 12% and the rate for 2027-28 is 15%. After that, the normal rates of income tax apply, so potentially up to 45% if you’re an additional ratepayer. One of the requirements of the temporary repatriation facility is that you have to be UK resident in any of the three years when you want to use that facility. So, it has ruled out people who are currently non-resident who may want to come back to the UK after 5 April 2028.

SR: And if you’re using the TRF, do you actually need to bring the funds to the UK?

KF: You don’t have to bring the funds to the UK as long as you can pay the 12 or 15% rate that you’ve elected to use. It doesn’t matter which funds that tax is paid from, and you can bring the money into the UK that’s been designated either in the year that you use TRF or any subsequent year. It doesn’t matter because you don’t need to track it. It’s already been taxed once, which is the principle.

SR: So we’ve mentioned FIG, we’ve mentioned TRF, but I understand there’s also something called OWR. Now that isn’t new Adelle, is it? But it has changed, is that correct?

AG: That’s right. OWR stands for overseas workday relief, and that essentially is UK tax relief on non-UK workdays, meaning an apportioned amount of a resident employee’s employment income is not taxable in the UK on the basis that they’ve performed those employment duties in another country. This is usually applied by the employer via the payroll on an estimated basis during the tax year, and then the individual has to show it up on their self assessment tax return at the end of the year when they know exactly what the ratio of non-UK to UK workdays is. Overseas workday relief was previously available under the non-dom regime to those claiming the remittance basis, and it is still available to those who qualify under the new FIG regime.

SR: OK, so some consistency there, that one does carry on, but it has changed, I believe?

AG: Yes. So now OWR is available for four years under the new regime, whereas previously it was only available for three years, which was the year of arrival and the following two years. However, there is now a financial cap, which is the lower of 30% of the qualifying employment income or £300,000 per tax year.

SR: So, I think this measure, the abolition of non-doms regime, the introduction of new rules, has been described by some as a simplification measure. Katherine, do you feel that that is the case?

KF: I think in some respects it is simpler to understand, and certainly from 6 April 2025 there will be less record keeping. The FIG regime is only for a four-year period, so your foreign income and gains don’t need to be tracked indefinitely as to where the money goes. However, for any taxpayer who doesn’t use the FIG regime and isn’t using the temporary repatriation facility, they will still need to track and declare remittances from their foreign accounts for income and gains that arose up to 5 April 2025, so that record keeping hasn’t potentially gone away if TRF isn’t going to be used. I think the new regime is also more complicated because it actually requires three separate claims, plus one election, depending on what sources of income and gains you have. There is one claim for foreign income, one claim for foreign capital gains, and then separately, overseas workday relief requires an election to use it, but also a claim as well. And as part of the claims, you have to quantify the foreign income and gains that you want to be relieved from tax.

SR: I guess the more opportunities for elections and claims means more likelihood of making a mistake along the way as well.

KF: Potentially, and there is a very small window where a claim is careless or deliberate, and that you’ve only got the normal 12-month amendment window for a tax return to amend the claim, because no consequential claims are allowed. So, it’s important that you get it right early on. And that’s tricky when you have a mismatch between the UK year end on 5 April and most other countries having a 31 December year end in terms of when information becomes available.

SR: Adelle, you mentioned earlier the changes to overseas workday relief. Have they made it easier to understand and apply?

AG: Not needing to pay into overseas bank accounts is a huge benefit for both employees and employers going forward. For some smaller employers, having to pay into overseas bank accounts was simply a blocker to enable their employees to claim this relief previously, and employees not having to track or manage multiple bank accounts going forward is also much simpler.

SR: So it could well be a positive change for a lot of smaller employers in particular?

AG: Yeah, on a go-forward basis, for sure.

SR: I did also see from our tax news service that there seems to be a change to HMRC processes as well, is that also a positive change?

AG: Yes, there have definitely been operational improvements to the process. In order to apply this relief via payroll, employers do have to make an application. Previously they had to wait for approval from HMRC before they could reduce the amount of income that was taxable via the payroll, and delays on HMRC side often meant that it would take a long time for this to come through. The tax year would end, or there’d be cash-flow problems because the employees also had a withholding obligation in another country. So, since 6 April 2025 an application still does need to be made, but employers no longer have to wait for the approval to come through, so they can start to apply the reduced amount immediately.

SR: That sounds a lot more efficient compared to the old process, so that’s some positives there. But are there any potential pitfalls in the changes that advisers should be aware of?

AG: Yeah, unfortunately existing applications that were valid before 6 April 2025 are no longer valid, meaning that applications were required even if the previous determinations that were in place would not have expired. So, the system was open from 6 April 2025 and they all had to be resubmitted, and that will also be the case every new tax year. Whereas previously we could submit applications for up to the three-year period, now there’ll be a new application required each tax year, which will prompt employers to review the employee circumstances and make sure their estimates are correct, but it’s also a lot more admin.

SR: Something for employers’ diaries there then to make sure they don’t miss that obligation going forward. Katherine, does anything stand out for you?

KF: I think it’s interesting that they haven’t carried on with any sort of form of remittance basis charge for using the FIG regime. I think that probably raised a few eyebrows, and the fact that it’s not available for nonresidents to use the temporary repatriation facility just seems a slightly strange decision, because it may well put people who were previously in the UK off from coming back at a future date if they’re going to be liable at 45% on previous income. And I think as Adelle said, the changes to the overseas workday relief processes is a welcome change, it’s just a shame that the agreements are only valid for a year and have to be redone every April. It just seemed a slightly strange decision not to be able to carry that on.

SR: So far we’ve focused on the new rules, but it’s the case that the old rules are still going to be with us for a little bit longer, isn’t it Katherine?

KF: Absolutely. People will probably start thinking about the 2024-25 tax returns, so all of the old rules still apply for that. You still need to claim remittance basis if foreign income and gains are over £2,000 per year, you still need to track your client’s residency position under the statutory residency test, you still need to pay remittance basis charge if your client’s been here more than seven previous tax years. So yeah, this is quite a tricky period for advisers, because you’re covering two sets of rules in terms of dealing with returns under the old rules but also having to advise clients on the new rules. And I’m sure a lot of advisers have had inquiries from clients about whether they should be leaving the UK or not.

SR: That does sound like quite a challenge, doesn’t it? So, you essentially have to keep in mind the old rules because you’re looking back for previous years’ tax returns, but then also look ahead to the new rules to advise going forward?

KF: Absolutely. And it’s definitely not an area for the faint hearted to deal in if you’ve not dealt with it before.

SR: No, not at all. Adelle, is that also the case for overseas workday relief?

AG: There are transitional rules in place for overseas workday relief. For those who were eligible prior to 6 April 2025 but find that they are not eligible under the new FIG regime, these individuals can still claim up until the end of their third year of residence, while those who find that they’re eligible for both under both regimes can claim for the full four-year period, and the financial cap won’t apply in these cases – but the previous remittance basis rules will to pre-2025/26 income, so that income will still need to be tracked.

SR: As we’ve mentioned, the concept of domicile has gone for income tax, it’s gone for CGT and also IHT. Katherine, can you explain what’s going on there?

KF: Of course. As you said, the concept of domicile has now been abolished for inheritance tax as well. It was notoriously difficult to get any sort of ruling on domicile since the DOM1 form was withdrawn several years ago. People do want certainty of position, and to some extent that will offer that even though the statutory residency test isn’t in itself perfect. For inheritance tax we have the concept of a long-term resident, and that is somebody who has been resident for 10 out of the 20 previous tax years. So, UK assets will continue to be liable to inheritance tax, it’s just when foreign assets then come into the inheritance tax net as well. For people who leave the UK who were previously domiciled, they will be in scope for between three and 10 years, on a sliding scale, depending on how long they’ve been in the UK for.

There are also some quite big changes to trusts. Trusts holding non-UK assets will be subject to the relevant property charges – that’s things like 10-year charges and exit charges – if the settler is long-term resident at the point when a charge arises. With long-term residency having a 20-year window under these new rules, in some cases you will be looking at residency before 2013, which is when the statutory residency test came in, and you will still need to determine their residency under the pre-2013 rules. So, you’ve got 20 years’ worth of record keeping on somebody’s residency position to bear in mind there. I think there were calls within the profession for some sort of election just to be able to use the statutory residency test for periods before 2013, but that didn’t get through.

SR: That’s a really interesting point. So not only are you going back 20 years, but you’re looking at two sets of rules. And that first set, that previous set, you’re not obviously going to be overly familiar with, it’s been a long time.

KF: No, if you’ve joined the profession in the last 12 years, you might not have too much knowledge of the pre-2013 rules.

SR: As I mentioned earlier, there has been lots of opposition to these changes, and clearly we’re focusing on tax here, but Katherine, are there any other barriers that you’re aware of?

KF: One of the areas we’ve had feedback on from members is that there isn’t an ideal visa category for wealthy investors looking to come to the UK. If they’re not employees and they’re not setting up a business, there isn’t an obvious category, apparently, that they can use for a visa, even though they’re willing to come here and invest money here.

SR: Adelle, is the UK going with the tide in terms of other regimes, or are we against the tide here?

AG: There’s a range of different tax schemes designed to attract people to different countries, either to work or to live. Spain, for example, has a special expat regime, which is known colloquially as the Beckham regime, and that allows a flat rate of 24% on the first €600,000 of employment income, as well as exemption on foreign investments and gains for up to six years. Italy also has a flat tax regime, and that’s available to inbounds on foreign incomes and gains. Switzerland has a lump sum regime for people who are moving to Switzerland to live but are actually not going to carry out any work in Switzerland. And France has another impact rate regime, which works similarly to our overseas workday relief, and it’s specifically for new French residents who’ve been recruited by French companies to work in France.

SR: In the run-up to this podcast, we did wonder how to refer to the new rules, because obviously the non-doms are such a familiar term. Everyone knows what we’re talking about, but there’s no real equivalent to that for the new regime is there?

KF: No. There’s a lot of acronyms, but nothing that rolls off the tongue very easily. So, I think we’ll probably use FIG regime a lot, although that doesn’t really help for the inheritance tax. LTR is not really a great term, is it?

SR: It’s not quite the same, is it? And Adelle, you’ve just mentioned the Beckham regime in Spain, which I guess refers back to David Beckham when he started to play for Real Madrid. So perhaps that’s the way forward for us as well, and maybe we’ll name our new regime after someone famous.

KF: I was reading an article the other day. There’s been a big influx of American citizens into the Cotswolds, so maybe we call it the Cotswold regime.

SR: Whatever we call it, there is no doubt that this represents a significant change to what was and will continue to be a challenging area. Now, Katherine, you’ve clearly been heavily involved in this, and I understand you’re going to write a series of articles for TAXline?

KF: That’s correct, yeah. We’re going to do a series of articles so that members are aware of the rules covering FIG, TRF, long-term residence and overseas workday relief to give people an overview of what has changed, given it is such a big change from what we had before.

SR: There’s certainly lots to cover there. Well, please everyone, do tread carefully, as we all know a key requirement of professional conduct in relation to taxation, PCRT, is that advisers should ensure they are suitably experienced before advising clients.

That’s it for this episode, many thanks to Katherine and Adelle for your contributions, and thank you for listening. All of the topics we’ve discussed today are covered in more depth in the articles linked in the show notes. If you found this useful, then don’t forget to subscribe so you never miss an episode. You can rate and share the podcast, too.

We’ll be back next month with the next Tax Track. In the meantime, why not check out the sister podcasts from ICAEW? Accountancy Insights provides business, finance and accountancy analysis, while each episode of Behind the Numbers offers a deep dive into a selected topic, and there’s also the students’ podcast aimed at young professionals. If you’re not already a member of ICAEW’s tax faculty, remember that institute members can join the faculty for no additional cost. Faculty members receive our monthly TAXline bulletin, and in addition, anyone can subscribe to receive our weekly TAXwire newsletter covering the latest tax news from ICAEW. Thank you for listening.