Chris Thorpe considers recent announcements concerning ‘non-dom’ status.
For over a hundred years, the remittance basis has been in place for those not domiciled in the UK (non-doms).
However, in April 2024, it was announced that the foundation for the remittance basis will change from domicile to physical residence in the UK from April 2025. Also, changes were announced with respect to exposure to inheritance tax (IHT) from the ‘deemed domicile’ rules.
Non-domicile
Under UK common law, everyone has a domicile assigned at birth (i.e., a ‘domicile of origin’), which in England and Wales reflects one’s father’s domicile (assuming the parents are married). Children under 16 take their father’s domicile, with women married before 1 January 1974 taking that of their husband (domicile of dependence). However, an individual can subsequently decide their own domicile by their actions.
For IHT (and from April 2017, for all tax purposes) there is another form of domicile, which is based on residence – once resident in the UK (per the statutory residence test) for 15 of the last 20 years, one is ‘deemed’ domiciled for tax purposes. When someone leaves the UK, they remain domiciled for a further 3 years (the tail).
Remittance basis
Currently, anyone who wishes to avail themselves of the remittance basis can only do so if they are non-UK domiciled – only those foreign income or gains (FIGs) which are ‘remitted’ to the UK are subject to UK tax.
The remittance basis is available automatically if unremitted FIGs are below £2,000 and relevant individuals retain their UK personal allowance or annual exemption and dividend tax rates; claiming the remittance basis will cost an individual their personal allowance and mean dividends are taxed at earned income rates. Once being resident seven out of the last nine years, there is a further charge of £30,000 for the privilege, or £60,000 once resident 12 years out of 14.
Excluded property trusts
When a non-dom establishes a non-UK trust with non-UK situs assets, they remain out of scope of IHT even if the settlor or their spouse can still benefit.
From 2017, provided existing trusts are not ‘tainted’ (i.e., added to) and the settlor remains non-domiciled under common law rules, the trust will remain excluded.
Proposals
The previous government announced that from April 2025, within someone’s first four years’ residence in the UK (having been outside for the last ten years), they can remit FIGs to the UK with no tax implications; thereafter, they are subject to UK tax under the arising basis. Domicile would no longer factor in the rules. For 2025/26, remitted income (not gains) can attract a 50% discount, and for 2025/26 and 2026/27, a ‘temporary repatriation facility’ allows for historic FIGs to be remitted with a 12% tax rate. Capital assets are rebased at the April 2019 valuation.
Existing excluded property trusts are not subject to any change, but any new trusts created after 2025 will take the residence of its settlor. Individuals will be subject to IHT once resident in the UK after 10 years’ residence but will remain so for a further 10 years after leaving the UK.
At the time, Labour largely supported the proposals, but the October 2024 budget made a few amendments: the Temporary Repatriation Facility will be extended for three rather than two years and will apply to trusts; the 50% income reduction for 2025/26 will be removed; the 10-year ‘tail’ can be tapered in certain circumstances; capital assets will also be rebased at April 2017 not 2019 values, and transitional rules will be in place for excluded property trusts.
Practical tip
If the proposed changes are enacted by this new Labour government, many non-doms could find themselves (and maybe their offshore trusts) subject to UK tax for the first time. Careful planning of their potential continuing residence in the UK should (and probably has been) carried out.
