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Non-dom regime replaced by foreign income and gains regime

Author: ICAEW Insights

Published: 06 Mar 2024

In the Spring Budget, the Chancellor announced that the current remittance basis of taxation will be abolished for UK resident non-domiciled individuals from 6 April 2025 and replaced by a new four-year foreign income and gains (FIG) regime.

The new FIG regime will apply to individuals who become UK tax resident after a period of 10 tax years of non-UK residence. The regime will allow qualifying individuals to not pay tax on FIG arising during their first four years of being UK tax resident. They will instead be able to ‘onshore’ their foreign income and gains free from additional charges. This includes non-resident trust distributions. Overseas workday relief will be retained and simplified.

Like the current remittance basis, individuals choosing to be taxed under the FIG regime will lose entitlement to personal allowances and the capital gains tax annual exempt amount.

Various transitional provisions are proposed:

  • Individuals who have been UK resident for less than four years on 6 April 2025 (following a period of 10 tax years of non-UK residence) will be able to use the FIG regime for the remainder of those four years. 
  • Individuals moving from the remittance basis to the arising basis on 6 April 2025 and who are not eligible for the FIG regime will pay tax on 50% of their foreign income in 2025/26. However, this does not apply to foreign chargeable gains. 
  • Individuals who have claimed the remittance basis will, on a disposal of an asset held personally at 5 April 2019, be able to elect to rebase that asset to its value as at that date.

There will also be a temporary repatriation facility. Individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 FIG in 2025/26 and 2026/27. Additionally, there will be some relaxation of the mixed fund ordering rules to make it easier for individuals to take advantage of the TRF.

Changes will also apply to trusts. The protection from taxation on future income and gains as it arises within trust structures (whenever established) will be removed for all current non-domiciled and deemed domiciled individuals who do not qualify for the FIG regime. From 6 April 2025, FIG arising in non-resident trust structures will be taxed on the settlor or transferor if they have been UK resident for more than four tax years. FIG arising in trust structures before 6 April 2025, will be taxed on settlors or beneficiaries if they are matched to trust distributions. 

Subject to consultation, the government also intends to move to a residence-based regime for inheritance tax from 6 April 2025. The consultation will cover transitional provisions, the length of the residence criteria and tail provision, any connecting factors other than residence, gifts with reservation, domicile elections, formerly domiciled residents and calculation of trust charges.

The current regime

A UK tax resident and domiciled individual pays UK tax on their worldwide income and gains. However, where a UK tax resident individual is not UK domiciled, they may pay UK tax on foreign income and gains only to the extent that funds are remitted to the UK. This can be where:

  • the value of unremitted foreign income and gains is less than £2,000 in the tax year; or
  • the individual claims the ‘remittance basis’.

Where the remittance basis is claimed, the person will generally lose their UK tax-free allowances for income tax and capital gains tax. Furthermore, they must pay an annual charge once they have been resident for a number of tax years. That annual charge is:

  • £30,000 if the taxpayer has been resident for at least seven of the previous nine tax years; or
  • £60,000 if the taxpayer has been resident for at least 12 of the previous 14 tax years.

It is not possible to claim the remittance basis if a person is ‘deemed domiciled’. This is where they were resident in the UK for at least 15 of the preceding 20 tax years or if they were born in the UK with a UK domicile of origin and are UK tax resident in any tax year from 2017/18 onwards.

What is domicile?

Domicile is a general law (not tax law) concept. It is about where an individual ‘belongs’. It is usually established through their parents’ domicile at the time of their birth (domicile of origin). It can be difficult to change domicile (a domicile of choice) because it must be evidenced by life choices. Passports, citizenship, and tax residence do not necessarily confer a change in domicile. An individual may have dual residence and passports, but can only have one domicile.

In the UK, there is a statutory test to determine tax residence. For UK tax purposes only, an individual can be ‘deemed domiciled’. This does not change their domicile for general law purposes.

Further reading

Technical note: Changes to the taxation of non-UK domiciled individuals

Spring Budget 2024: Non-UK domiciled individuals - Policy Summary

ICAEW Analysis of Budget 2024

Webinar: Budget 2024

Listen to ICAEW's Tax Faculty reflect on the Budget announcements and what they could mean for you and your clients.

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Further resources

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Analysis from ICAEW's experts on the Autumn Budget 2021 and the comprehensive spending review published on 27 October 2021.
Budget 2024

On 6 March 2024, Jeremy Hunt delivered his budget reducing NI rates, increasing the VAT threshold for small businesses and pledging the end to 'non-domicile' tax status. Read ICAEW's reaction and analysis.

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