UK : Announcements of 6 March 2024 and the End of the UK « Non Dom » tax regime

The UK Government recently announced significant tax reforms in its Spring 2024 Budget. The proposed changes concern the tax rules for individuals resident in the UK or wishing to establish themselves in the UK who currently benefit from the « Non Dom » tax regime (the definition of “domicile” being extremely complex and thus, different in comparison with the Europe, and notably in Switzerland).

The details of the implementation of these announcements are still unclear and have yet to be defined, notably due to the upcoming general election in 2024 in the UK (in this matter, the Opposition’s pledge to toughen (below) new rules further has sown confusion). However, the purpose of our article is to give you an initial overview of the changes that could take place since the beginning of the next fiscal year in the UK (meaning, April 6, 2025), at the soonest.

The main announcements made by the UK Government on 6 March 2024 are :

Foreign Income and Gains
- Abolition of the optional « Remittance basis » regime;
- Introduction of a new preferential tax regime, the « Foreign Income and Gains Regime » (hereafter: « FIG ») ;
- Introduction of transitional rules following the abolition of the « Remittance basis » and the introduction of « FIG ».
- Remove of “Protected Trust” notion from a tax standpoint.
Inheritance tax (hereafter: “IHT”):
- The concept of « domicile » will no longer be a connecting factor for IHT in the UK. From 6 April 2025, IHT liability in the UK will be based solely on the tax residence rule.
- A person would be taxed, at IHT level, on these worldwide assets if resident in the UK for more than ten tax years and will remain in scope 10 years after becoming a non-UK resident, subject to the application of double taxation treaties.

As a reminder, the « Remittance basis » tax regime is currently applied to foreign-source income and gains. Under this regime, individuals who were resident in the UK for less than 15 of the last 20 tax years and who were considered as « UK Non Dom » paid UK tax only on UK-source income and gains. Foreign-source income and gains were taxable in the UK only when remitted to the UK.

From 6 April 2025, a new preferential tax regime, the « FIG », will be introduced, replacing the « Remittance basis » tax regime. Under this new regime, a person who has not been resident in the UK for the last ten years and who moves to the UK would be exempt from UK tax on foreign-source income and gains for the first four years of tax residence, whether or not they are remitted to the UK.

This new regime therefore would apply to :

To new residents of the UK from 6 April 2025 ;
To current tax residents befitting from the « Remittance basis » tax regime and who have been tax residents for less than four tax years (meaning, arrived in the UK afterwards April 5, 2022), for the number of tax years remaining until four years of tax residency have been achieved in total.

From the fifth year of tax residence, the « FIG » preferential regime would be no longer applicable, and UK tax is levied on worldwide income and gains. It is important to note that the new « FIG » preferential regime would be not granted automatically, but should be applied for each year by taxpayers who meet the conditions and claim, annually, the FIG application.

Transitional rules should be put in place for people who are currently on the « Remittance basis » and have been on it for more than four years.

These taxpayers would pay tax only on 50% of their foreign-source income. However, this reduction does not apply to foreign-source capital gains.
These taxpayers could claim capital gains tax relief for assets held privately, acquired before April 6, 2019. Thus, from 6 April 2025, to determine the capital gain arising on the disposal of a privately held asset, the acquisition value taken into account would be that of the assets on 6 April 2019, for assets held on that date. This would reduce the amount of taxable capital gains.
The targeted taxpayers (incl. “deemed domicile”) could benefit from a temporary remittance facility for foreign-source income and gains for two fiscal years. They could choose to remit foreign-source income and gains earned before 6 April 2025 to the UK at a preferential rate of 12%. This facility could only be available for the tax years 2025/2026 and 2026/2027.

These announcements by the UK Government on 6 March 2024 would therefore overturn the current tax rules for individuals resident in the UK who benefit from the "Non Dom" tax regime. Individuals wishing to move to the UK and Non-Dom residents should keep themselves informed and check whether they could benefit from the new regime, which will be introduced on 6 April 2025. The subtleties of this new regime need to be considered carefully, as does its very limited duration. In this respect, it is interesting to compare this regime with other existing regimes in Europe, particularly in Switzerland (link to our article "Moving to Switzerland").

The abolition of the concept of "domicile of choice" from an inheritance law point of view and the introduction of a ten-year resale right would also change the strategy to be considered in the context of estate planning. In any case, it would provide welcome legal certainty compared with the current system, in which the slightest link with the UK can be interpreted as sufficient to consider that the person is still making this country their "domicile of choice", despite having left several years earlier. On the other hand, such a change will require a review of double-taxation treaties relating to inheritance in order to avoid double taxation. This is particularly the case with the CH-UK DTA.

It should be remembered that this reform has not yet come into force and that further details regarding the implementation of these announcements have yet to be announced. However, RSM Switzerland remains at your disposal to advise you on the measures you should consider to anticipate the implementation of these announcements.