The landscape for non-UK domiciled individuals (non-doms) is on the brink of significant change as the Chancellor implements a shift towards a residence-based tax regime. But what challenges might this present and how can you prepare? 

Following on from the Conservative government’s initial announcement in their final budget to reform the regime for non-doms, Rachel Reeves’ recent announcement outlined Labour’s plans to make the pivotal shift from the existing remittance basis regime to a resident-based tax regime. These upcoming changes will have far-reaching implications for non-doms, including in areas such as Inheritance Tax (IHT) and offshore trusts. While there may be challenges ahead for those impacted by these changes, there will also be opportunities, and it is important to take steps to prepare.

New tax regime for arrivals 

Abolishment of the remittance basis for tax years beyond 2024/25. 

The term 'non-dom' refers to individuals who, despite residing in the UK, have their permanent home or domicile outside of the UK. Currently, non-UK domiciled individuals who haven't been UK residents for more than 15 out of the past 20 tax years, can opt to be taxed on the remittance basis, which means they are only taxed on their UK-sourced income and gains, plus any foreign income and gains they bring into the UK. This basis of taxation will be discontinued from 6 April 2025. 

Introduction of a four-year tax exemption 

The proposal is that, from 6 April 2025, individuals relocating to the UK will be able to elect to exempt their foreign income and gains for the first four years of their UK tax residency, provided they were non-UK tax residents for the preceding 10 years. Such a claim will result in the loss of their personal allowance and Capital Gains Tax exemption. Labour believe this change will make the UK attractive for foreign investors to relocate to.  

Transition to standard tax treatment 

After the initial four-year period, these individuals will be taxed on their worldwide income and gains. The new system simplifies the tax treatment of foreign income and gains, which will no longer be taxable upon remittance to the UK.