Tax 29th July 2024
Labour’s 2024 Reforms to NonDom Status
2024 Non-Dom Reforms Summary
Earlier this year, Labour pledged to reform the taxation of non-doms and their structures. While the proposals shared many similarities to the Conservative’s, the key difference included the inheritance tax treatment of existing trusts.
After Labour’s election win on 4th July, their version of the reforms will be implemented – however, questions remain about the specifics and timing of these changes.
Although the precise details are still being finalised, we have a good idea of the core regime.
Remittance Basis Replacement
Effective from 6 April 2025, the remittance basis regime will be replaced. New UK residents can claim a special status for their first four years, exempting them from UK tax on foreign income and gains, which they can bring into the UK tax-free.
2024 Inheritance Tax Changes
Labour plans to change the UK’s inheritance tax rules, making individuals liable for inheritance tax on worldwide assets if they:
- Have been UK tax residents for 10 or more tax years, or
- Have left the UK within the last 10 tax years after meeting the residency criteria.
Trusts and Tax Protections
Non-dom trusts will lose many current tax protections. Specifically:
- Income and gains in trusts with a living, UK-resident settlor could be taxed on the settlor.
- Trust funds will be exposed to UK inheritance tax as long as the settlor is within the scope of UK inheritance tax on their worldwide estate.
Timing
Key changes are scheduled for 6 April 2025, but there are three possible scenarios:
- All changes come into force on 6 April 2025.
- Some changes start on 6 April 2025, with significant aspects delayed.
- All changes are delayed, possibly until 6 April 2026.
We believe the first scenario is most likely.
Transitional Rules
Labour plans to adopt two of the Conservative’s proposed transitional rules:
Rebasing Relief
Non-doms can rebase foreign assets to their 6 April 2019 value for tax purposes when disposing of them on or after 6 April 2025.
Temporary Repatriation Facility (TRF)
Non-doms can remit pre-6 April 2025 foreign income and gains in 2025/26 or 2026/27 at a flat 12% tax rate.
2024 Inheritance Tax (IHT)
Labour supports moving from a domicile-based to a residence-based inheritance tax regime:
- UK tax residents for 10 years will be liable for inheritance tax on worldwide assets.
- Non-residents will be liable only on UK assets.
- A 10-year “tail” will apply for those leaving the UK.
Changes for Trusts
Current Position
Certain trusts benefit from “protected trust” status, shielding gains and foreign income from UK tax until distributions to UK beneficiaries.
Proposed Changes
From 6 April 2025, this protection will cease, and income and gains in affected trusts will be taxable on UK resident settlers.
2024 Tax Changes Laid Out
| Existing Scheme | Labour’s Proposed Scheme | Additional Restrictions | |
|---|---|---|---|
| Eligibility for regime (income tax and capital gains tax) | Eligible if non-UK domiciled (broadly if your permanent home is outside the UK) and resident in the UK for less than 15 years. | Eligible for the first four years of UK residency if non-UK resident for the previous 10 years. | No changes announced |
| Basis of regime (income tax and capital gains tax) | UK source income and gains subject to UK tax. Foreign income and gains subject to tax only if brought to the UK (remitted). | UK source income and gains will be taxed in the UK. Foreign income and gains are tax-exempt in the UK and can be brought to the UK tax-free. | Labour are proposing an additional exemption for UK investment income. The details are unclear. |
| Trust protections for income and capital gains | Where a trust has been settled by a non-UK domiciled individual, foreign income and most gains can roll up in the trust free from UK tax. They are then potentially subject to UK tax only by reference to distributions made to UK residents. | Trust protections removed. First four years: foreign income and gains, and certain distributions outside the UK, are tax-exempt. Post four years: all trust profits are taxable for the settlor; beneficiaries taxed on all distributions. | No changes announced |
| Inheritance tax on assets held directly | Non-dom individuals who have not been resident in the UK for 15 years are only subject to UK inheritance tax on UK assets (including UK residential property held indirectly). | Individuals will only be subject to UK inheritance tax on their UK assets for their first 10 years of UK residency (if non-UK resident for at least 10 years before that). After the 10 years they will be subject to inheritance tax on their worldwide assets. | No changes announced |
| Inheritance tax on assets held in trust | Non-UK assets held by a trust settled by a non-dom who has not been resident in the UK for 15 years are exempt from UK inheritance tax. | Inheritance tax on UK assets only for the first 10 years of UK residency if previously non-UK resident for 10 years. Worldwide assets subject to tax after 10 years. Trusts settled before 6 April 2025 retain current inheritance tax protection. Non-UK assets in trusts settled after 6 April 2025 may be exempt if within the first 10 years of UK residency but may lose exemption if the settlor is UK resident for over 10 years at a 10-year trust anniversary. | Labour proposes to restrict this inheritance tax exemption. Trusts, whenever settled, will no longer qualify for the inheritance tax exemption. |
| Income tax reduction | Not applicable | 50% of foreign income received in the 2025/26 tax year will be taxable. Applies to individuals transitioning to the new regime on 6 April 2025. | Labour proposes to eliminate this relief. |
| Capital gains tax rebasing | Not applicable | Foreign assets revalued for capital gains tax; only post-5 April 2019 gains taxed under the new regime. Applies to individuals taxed under the old regime and in the UK for less than 15 years. | No changes announced |
| Temporary repatriation relief | Foreign income and gains taxed at up to 45 per cent on income and 20 per cent on gains when remitted to the UK. | Foreign income and gains remitted to the UK from 6 April 2025 to 5 April 2027 taxed at 12%. Applies to individuals taxed under the old regime with foreign income and gains taxable upon remittance to the UK. | Labour have indicated that they will consider applying an incentive for non-doms to bring their foreign income and gains to the UK after this relief is due to expire on 6 April 2027. It is not clear whether this relief will be extended or the incentive will take a different form. |
How We Can Help
At Eastfield Accountants, we have extensive experience advising non-domiciled individuals. We can help you navigate these changes, plan accordingly, and utilise transitional rules effectively.
If you have any questions or need personalised advice, please contact Mark today. Stay informed and prepared and allow us to be your trusted partner in navigating complex tax landscapes.