Government publishes non-dom policy paper: key changes ahead
The UK government has unveiled its latest policy paper on non-domiciled taxation, outlining key changes set to reshape the landscape for high-net-worth individuals from April 2025. While largely reaffirming previously announced measures, the document introduces significant updates that will have far-reaching implications.
The government has signalled its intention to provide further clarity at the 30th October Budget.
Tracey Neuman, Private Client Executive, delves into the key changes below.
Non-domiciled taxation changes: effective April 2025
1. Abolition of domicile as a tax concept
Domicile will be replaced by a new four-year regime, known as the "FIG regime," which exempts non-UK income and capital gains from tax during the first four years of residence. This exemption applies only if the individual has not been a UK resident in the previous ten years. Despite calls for extending this period, the Government has not made any changes.
2. Abolition of protected trust status
UK resident settlors not eligible for the FIG regime will now be liable for income tax and capital gains tax on the trusts they have established.
3. No income tax relief for certain non-doms
Non-doms outside the FIG regime will not receive any income tax relief in the first year of the new rules. This contradicts a Conservative Party suggestion that only 50% of their foreign income would be taxed initially.
4. Rebasing assets for capital gains tax
The Government will allow asset rebasing for capital gains tax purposes to a date yet to be determined. While 2019 was previously suggested, a more recent date is anticipated for ease of valuation. This will be confirmed in the upcoming Budget.
5. Temporary repatriation facility (TRF)
There will be a facility allowing non-UK income and capital gains, previously protected under the remittance basis, to be brought to the UK at a reduced tax rate for a limited period. Specific rates and timeframes will be announced to make this option attractive. The Government is also exploring extending TRF access to income and gains within structures.
6. Inheritance tax (IHT) changes
Full IHT exposure will apply to those who have been UK residents for ten years, remaining in scope for ten years after departure. Despite the lengthy exposure period, the Government plans to engage with stakeholders to consider potential refinements.
7. Abolition of excluded property trusts
The Government will change how IHT is charged on non-UK assets held in trusts, making all in-scope UK IHT subjects pay their taxes here, based on the settlor's residence. The impact on existing structures will be considered to allow for appropriate adjustments, with details to be published in the Budget. There will be no formal consultation, but engagement sessions on IHT are proposed.
Additional tax news
Private schools face a significant tax increase with a 20% VAT on school fees from 1 January 2025. Any fees paid upfront after 29 July 2024 for a term starting on or after this date will also be retrospectively taxed. Furthermore, certain charitable reliefs for private schools will be removed starting April 2025.
These updates reflect substantial changes in the UK tax landscape, particularly affecting non-domiciled individuals and private educational institutions. Stakeholders are advised to stay informed and engage in the upcoming consultations and sessions for a clearer understanding and potential adjustments.
How can Ocorian help?
Remember, the impact of these changes depends on your unique circumstances. Our Private Client team has extensive experience navigating complex tax situations. We can help you explore personalised strategies to minimise the impact on your family's finances.
Don't wait – reach out to the Ocorian team to discuss in more detail.
