UK : Announcements of 5 July 2024 and the End of the UK « Non Dom » tax regime

Since Labour came to power on 5 July 2024, the UK government has government has confirmed the abolition of the "non-dom" regime and announced that it will present a budget on 30 October 2024.

The UK tax system will undergo significant changes with the elimination of the fiscal domicile concept starting from April 6, 2025.
This reform will introduce a residence-based regime, allowing new residents to benefit from a 100% tax relief on foreign income and gains during their first four years in the UK.

Key Changes:

End of non-dom tax benefits from April 6, 2025:

1. Taxes on Foreign Income and Gains:

UK residents will be taxed on their worldwide income and gains, regardless of whether these funds are remitted to the UK. This means non-doms will no longer be able to avoid UK tax on foreign-generated income.

2. Tax Planning and Investment:

Non-doms will need to reevaluate their tax and investment strategies, as the tax benefits on foreign income will disappear. They must consider the impact of global taxation on their investment portfolios and estate planning.

3. Tax Transparency:

The abolition of the non-dom regime aims to increase transparency and reduce tax evasion, ensuring that all UK residents are taxed fairly on their global income.

4. Revision of Offshore Anti-Abuse Legislation:

Rules concerning the "Transfer of Assets Abroad" and "Settlements legislation" will be revised to counter tax abuse.

5. Continuation of the Overseas Workday Relief (OWR):

Non-dom employees domiciled in the UK can still benefit from a tax exemption on income related to work performed abroad for the first three years of UK residence, even if these earnings are remitted to the UK.

6. Inheritance Tax (IHT):

A residence-based regime will replace the current domicile-based system for inheritance tax. The new IHT rules will be consulted and are expected to be implemented from April 6, 2025.

Transitional Provisions:

1. Temporary Remittance Facility (TRF):

A temporary remittance facility will be established for income and gains accumulated before April 6, 2025, under the remittance basis regime. The tax rate for this remittance is not yet confirmed but was initially proposed at 12% by the previous government.

2. Revaluation of Foreign Assets:

Foreign assets can be revalued as of April 5, 2019, for capital gains tax calculation purposes.

3. No 50% Reduction of Foreign Income for the 2025/2026 Fiscal Year:

The previously announced provision by the former government will not be introduced.

Next Steps:

1. Consultation Sessions:

Engagement and consultation sessions will be organized to refine the details of the new rules, particularly on inheritance tax and the OWR. The precise consultation schedule will be announced soon.