The end of the remittance basis for non-doms
The Spring Budget held on 6 March 2024 has left a lot of people with questions regarding the planned end of the remittance basis for non-UK domiciled individuals (non-doms).
The concept of domicile is in common law, distinct from nationality and residence. An individual has one domicile determined by a variety of factors, such as where they were born, where their parents reside etc. Generally, an individual over the age of 16 is domiciled in the country in which they have their permanent home or a settled intention to reside permanently.
Conversely, the statutory residence test determines an individual’s residence. This broadly considers the working and living circumstances of an individual. An individual is either resident or non-resident for a complete tax year, but occasionally an individual may have a split year of residence.
There has long been controversy in the UK over the remittance basis rules for non-UK domiciled individuals. Historically, a non-dom individual would be able to claim the remittance basis – subject to various conditions – which would limit the income and gains chargeable to UK tax to the income earned within the UK. Overseas sourced income and gains not brought in or remitted to the UK would not fall within the UK tax net.
Foreign income and gains
During the Spring Budget, the Chancellor announced plans to abolish these rules from 6 April 2025, and replace them with a system based on the tax residence of an individual. The new four-year foreign income and gains (FIG) regime applies to those who have been non-UK tax resident for the previous 10 tax years. This means that foreign income and gains earned in the first four years of UK tax residency would not be subject to UK tax.
This also applies to individuals who are a UK tax resident for less than four years. They will then benefit from the exemption until the end of their fourth year of residence.
The four-year FIG exemption will also apply when bringing foreign income into the UK, which isn’t the case under the current remittance basis rules. The individuals will still pay UK tax on their UK-sourced income and gains, as they do currently.
How the remittance basis applies to employment income
Overseas workday relief (OWR) provides tax relief on employment earnings where duties of the employment are overseas. Eligible employees can still claim OWR for the first three years of UK tax residency. Although, it is important to note that the eligibility criteria is yet to be confirmed. Currently, the income subject to OWR cannot then be remitted to the UK. However, under the new four-year rules this will change, meaning it can be brought to the UK.
For transitional rules, there will be the option to rebase the value of capital assets to their value as of 5 April 2019. This is available to any non-doms who have claimed the remittance basis.
For 2025/26 only, there will be a temporary 50% reduction in the personal foreign income. This is subject to tax for non-doms eligible for the remittance basis who will not benefit from the four-year FIG exemption regime.
There will also be a temporary repatriation facility (TRF) available in 2025/26 and 2026/27. This will enable individuals to bring foreign income and gains they previously obtained and not remitted to the UK under a flat 12% tax rate. This will not apply to the pre-6 April 2025 foreign income or gains generated within trusts/trust structures. Foreign income and gains that arose in protected non-resident trusts before 6 April 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than four years.
If you need assistance with any aspects of the above, please do get in touch with Tamara Beach.
Read more analysis in our Spring Budget 2024 hub.