Financial and Tax Insights

Budget 24: Non-Doms & Resident Foreigners

A number of changes in the tax regime for non-doms and resident foreigners which had been previously announced, were confirmed in the recent Budget. In some cases, the changes will be significant and in this post we take a closer look at what they are and how the changes may affect you.

As always, however, you should contact us before taking any action as a result of the contents of this summary, or if you need any further help or support.

Non-Doms - FIG regime

As previously announced, the current remittance basis of taxation for UK resident non-domiciled individuals will be abolished with effect from 6 April 2025. The default position going forward will be that any UK resident individual (as determined under the Statutory Residence Test) is taxed on their foreign income and gains (FIG) on an arising basis.

From the 2025/26 tax year, any individual who becomes UK tax resident following a period of at least 10 years of non-UK residence can elect not to pay UK tax on FIG arising in their first 4 years of UK residence. There are various exclusions from the definition of FIG, but it does include distributions and benefits from non-resident trusts. Funds subject to this election can be brought into the UK without incurring a tax charge at any time thereafter, even if outside the initial 4-year period.

Electing to be taxed on this basis results in the loss of the individual’s personal allowances and annual exemption for capital gains tax purposes. UK income and capital gains will continue to be subject to tax as they arise.

An individual who was tax resident on 6 April 2025 for less than 4 years can claim the exemption on FIG for the remainder of the 4-year period provided they had 10 years of non-UK residence prior to their arrival. Otherwise, they will be subject to tax on their worldwide income and gains.

Temporary Repatriation Facility

For individuals who do not qualify for the FIG regime there will be a Temporary Repatriation Facility (TRF) whereby FIG arising prior to 6 April 2025 which was sheltered by a remittance basis claim is subject to a reduced rate of tax. For 2025/26 and 2026/27 this is 12%, rising to 15% in 2027/28.

This can also apply to payments and benefits from non-UK trusts where these are matched with pre-6 April 2025 FIG.

Once the TRF has been claimed in relation to an amount of FIG this can be remitted to the UK at any time without a further tax charge.

Overseas Workday Relief

In conjunction with the above changes, the rules for Overseas Workday Relief (OWR) have also been reformed.

This will now apply for the first 4 years (previously 3 years) of UK residence provided the individual meets the requirements of the FIG regime. It will no longer be necessary for the income to be paid outside of the UK but there will be a limit of qualifying employment income, being the lower of 30% of earnings subject to OWR or £300,000 per tax year.

Overseas Trusts

From 6 April 2025, income and gains arising within overseas trusts will no longer benefit from protected status unless the settlor qualifies for the FIG regime in a particular tax year. Where they do not, FIG arising in the trust will be taxed on the settlor, subject to possible relief under the TRF.

Inheritance Tax

UK inheritance tax (IHT) will also move to a residence based system from 6 April 2025.

Where an individual has been UK resident for at least 10 of the previous 20 tax years they will be charged to IHT on their worldwide assets.

On leaving the UK, an individual will continue to be within the scope of UK IHT for 3 years where they had been UK resident for between 10 and 13 years, increasing by one tax year for each additional year of UK residence.

IHT will also be charged on non-UK assets held in a non-UK trust where the settlor meets the residence requirement above.

Despite suggestions that the new regime would be “internationally competitive”, the reality is that it will be unattractive to many of the international community who contribute the most to the UK economy and who may now be reconsidering whether to come to or remain in the UK.

Further Budget insights

In our next article in this series about the recent Budget, we will take a quick look at the changes announced in respect of tax administration. However, you can find all our insights in respect of Budget 2024 here:

Please get in touch for advice before you take any action in respect of the Budget or contents of this article.