Game-Changing Tax Reforms: New Foreign Income & Gains Regime for UK non -doms

The UK’s Spring Budget 2024 has brought notable changes by announcing the removal of the tax exemption for non-domiciled residents. Under the previous system, these residents could keep their overseas income untaxed as long as it remained outside the UK and was not remitted. This update explores the implications of this abolishment and its potential impact on the financial landscape for non-doms.

What is non-dom status?

Non-doms are individuals whose permanent home, or domicile, is considered to be outside the UK. The current non-dom regime is a favourable tax regime which allows non-doms who are UK resident to opt to use the remittance basis of taxation, effectively exempting their foreign income and gains (FIG) from UK taxation unless remitted to the UK. It has also offered protection from Inheritance Tax on their non-UK sited assets.

New Foreign Income & Gains (“FIG”) Rules

Starting from 6 April 2025, the current remittance basis regime will be replaced with a new residence-based test. Non-domiciled residents will be exempt from paying taxes on their overseas income for the initial four years, after which they will align with all UK residents.

Current Regime New Regime Foreign income and gains are taxed when these are remitted to the UK with the duration of the Remittance basis ranging from 7 years to 15 years. UK tax residents are subject to FIG (foreign income and gains) regime after a period of at least 10 consecutive tax years of non-residence UK tax residents are deemed domiciled when they stay in 15 out of the previous 20 tax years, Once residing in the UK for a full 4 years, all overseas income and asset appreciation must be subject to UK taxation, effectively abolishing the Remittance basis that only taxed funds brought into the UK. it means they will subject to UK tax on their worldwide income and gains UK tax residents are subject to IHT on their worldwide assets (stay in 15 out of the previous 20 tax years)

In this new budget announcement, once a person has resided in the UK for a full four years, all overseas income and asset appreciation must be subjected to UK taxation. Additionally, new residents can benefit from a 100% tax exemption on overseas assets and income during their first four years. Current tax residents who have been in the UK for less than four years can still enjoy the remaining years of this exemption, particularly those who have recently obtained BNO visas, have four-year time to handle assets in Hong Kong.

For the first group of individuals holding BNO visas who have relocated to the UK and have lived there for three years, this signifies they only have approximately one year remaining to address offshore assets, or else even assets remaining in Hong Kong, without being remitted to the UK, will be subject to taxation.

Industry experts suggest that under the new regulations, Hong Kong residents who have relocated to the UK (especially for those under the BNO visa “5+1” scheme) and benefitted from tax relief under the Remittance basis, should expedite the handling of any assets out of the UK.

For individuals planning to relocate to the UK, it is recommended to set up a clean capital offshore account, a purely savings account. This account should be independently managed, separate from other accounts, without mingling various sources of income. Since the UK is a global tax jurisdiction, occasional inspections on the financial status of new immigrants may occur. If all financial inflows and outflows are commingled in a single account, there is a possibility of being subjected to taxation.

The recent budget changes for non-dom did not mention the impact on inheritance tax. Government documents indicate that research on the effects of inheritance tax is still ongoing. The inheritance tax is the “big issue” as the impact varies significantly depending on whether one is domiciled or non-dom in the UK upon passing away.

Although many details are yet to be determined, it is advisable that all current non-domiciled individuals or people who are going to immigrate to UK shall promptly review their circumstances without delay.

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Here are a few key offerings that UniTrust offers:

1. Tax Planning: UniTrust can provide tailored tax planning strategies to help individuals and businesses optimize their tax position under the new regime. Providing advice on structuring investments, managing foreign income and gains, and maximizing available reliefs and exemptions.
2. Compliance: UniTrust assists clients in achieving full compliance with the latest tax regulations. Collaborating with seasoned tax consultants, we facilitate in elucidating tax obligations, preparing tax returns encompassing liabilities, and addressing reporting prerequisites.
3. Residence and Domicile Advice: UniTrust offers guidance on residence and domicile status, which are key factors in determining an individual’s tax obligations under the new regime. We can help clients understand the rules and make informed decisions about their tax residency and domicile status.
4. Trusts and Estate Planning: UniTrust advises on effective trusts and estate planning to minimize tax liabilities for clients.

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Additional Information

UK Major Tax Information:

IHT Inheritance Tax — 40% on excess over Nil Rate bands

CGT Capital Gains Tax — up to 28% on gains

SDLT Stamp Duty Tax — up to 15% on transaction value (17% for overseas residents)

Income Tax — from 20% to 45% per annum

ATED Annual Tax on Enveloped Dwellings- from £4,150 — £269,450 per annum

Q&A

Q1. I am considering moving to the UK in the near future — will these rules affect me?

A: Yes, if you relocate to the UK on or after April 6, 2025, the new FIG regime will apply to you. Under the new regime, for the first four tax years of UK tax residency, you won’t have to pay UK tax on your foreign income and gains, regardless of whether or not you bring those funds to the UK. This simplifies banking arrangements as there is no longer a need for separate bank accounts for different types of income.

If you move to the UK in the 2024/25 tax year, you will have one year of grace period and then three years under the FIG rules, after which you will be taxed in the UK on the global income and gains arising from then on.

Q2 — I reside in the UK and have already been considered a domiciled individual — how do these rules affect me?

A: Residing in the UK is deemed as domiciled status, where one has been declaring global income and gains in the UK, therefore, individual FIG reporting remains unchanged.

Q3. I recently left the UK/will leave before April 5, 2025 — do I need to be aware of anything?

Taxation for non-UK residents will not change with the new regime.

Once you cease to be a UK tax resident, the UK only seeks to tax certain types of UK income, e.g. rental profits in the UK and pension income.

Non-UK tax residents will be subject to UK capital gains tax when selling UK residential or commercial properties.

Besides, individuals who were UK tax residents for ten years will be subject to UK inheritance tax (IHT) on worldwide assets in the following ten years after leaving.