Changes to the non-domicile rules
From April 2025, the UK will replace the remittance basis with a new foreign income and gains regime. Penny White , Associate Director Tax, expounds on these complex changes and recommends seeking a bespoke professional advice.
At the moment, UK resident individuals who are not domiciled or deemed domiciled in the UK have the choice to pay tax on the remittance basis (where UK tax is paid on foreign income and gains only to the extent they are brought into the UK) or the arising basis (where UK tax is payable on worldwide income and gains arising in the tax year).
Changes are coming and they are complicated. If you think they might affect you, please get in touch or take advice from your usual Shaw Gibbs adviser.
Foreign income and gains regime
From April 2025 (UK tax year 2025/26) the remittance basis is abolished and replaced by a new regime called the foreign income and gains regime.
This regime is open to anyone who meets the residence conditions as long as they had been non-UK resident for the 10 consecutive tax years immediately prior to entry to the UK.
Under the foreign income and gains regime, individuals are not taxed in the UK on their (in year) foreign income and gains for the first four tax years of UK residency (whether or not these are remitted to the UK). From the fifth year, UK resident individuals are fully taxable in the UK on their worldwide income and gains.
For example, an individual who became UK resident in (say) 2021/22 will have used their first four years of UK residency by 2024/25 so would not be able to benefit from the tax-free four year period, whereas one who became UK resident in (say) 2023/24 will have used two of their first four years of UK residency by 2024/25 so would potentially be able to benefit from two of the four tax-free years in 2025/26 and 2026/27.
Recommended by LinkedIn
Temporary repatriation facility for those who have claimed the remittance basis
Should an individual want to bring into the UK previously unremitted foreign income and gains on or after 6 April 2025, the existing remittance basis rules apply, modified by what is known as the temporary repatriation facility.
The temporary repatriation facility permits an individual who was a remittance basis user for a tax year prior to 2025/26 to select unremitted foreign income and gains which will be taxed during the three-year period 2025/26 to 2027/28 at a flat rate of UK tax: 12% in 2025/26 and 2026/27 and 15% in 2027/28. The selected foreign income or gains can then be remitted at a later date without becoming subject to additional UK tax.
Rebasing of foreign assets for those who have claimed the remittance basis
An individual who was a remittance basis user for a tax year between 2017/18 and 2025/26 will also qualify for the automatic rebasing of foreign chargeable assets as at 5 April 2017.
Changes to settlor-interested trusts
Gains accruing to non-resident trusts with UK resident non-domiciled settlors are currently matched against the trustees’ pool of gains and attributed to the settlor when they receive a benefit.
From 6 April 2025, a settlor of a settlor-interested trust who does not both qualify for and claim relief under the foreign income and gains regime will be taxed on foreign income and gains arising in the trust as if they were a UK domiciled settlor. The matching of pre-6 April 2025 foreign income and gains to trust distributions will continue to apply.
For more information, please contact us: info@shawgibbs.com on this complex area.