Preparing for Potential Shifts in Domicile and Taxation Policies

Anyone tuned into the news will have been hearing a lot of chatter about domicile as of late

One of the things I love most about a career in tax is that the landscape is ever-changing, whether that’s due to changes in legislation, changes in case law, or changes in HMRC guidance – there is always something new to learn.  However, this can also be one of the most frustrating aspects of tax.  Having spent years obtaining professional qualifications, it’s usually the case that the rules have changed before you’ve received your exam results (which is the reason we are required to undertake regular CPD). 

This is even more prevalent in an election year, particularly as the general consensus is that there will be a change in government.  In the Spring Budget, the Chancellor announced the proposed abolishment of the ‘non-dom’ regime and associated availability of the remittance basis of taxation, which will be replaced with the Foreign Income and Gains Regime (’FIG’). 

Domicile is a general law concept based on where you make your permanent home (taking into consideration family ties, social contacts, political interests, business interests etc).  Unlike residency, which is assessed on an annual basis, domicile is harder to change – requiring the severance of all ties to lose a domicile of origin and obtain a domicile of choice. 

Currently, non-UK domiciled individuals may claim the remittance basis in respect of offshore income and gains, with various implications depending on the value of the income/gains and the number of years the individual has been UK resident.  Claiming the remittance basis does not mean that income/gain is not taxed, only that it is done so when it is “remitted” to the UK (a deliberately broad definition, not simply bringing cash to the UK). 

The proposed changes announced in the Spring Budget were not enacted into legislation before parliament was dissolved and may never be so in the suggested form. 

Domicile – The Proposals 

For those arriving in the UK after 5 April 2025 (following a period of at least 10 years of non-UK residence) foreign income/gains arising in the first four years of UK residence would not be subject to taxation in the UK.  This applies equally to UK domiciled individuals – a perk not currently available.  It does, however, result in the loss of personal allowances and annual exemptions in the relevant year. 

For UK residents who, at 5 April 2025, had previously claimed the remittance basis: 

• Income/gains on which the remittance basis has been claimed, will remain subject to the existing regime and taxable in the event of a remittance.  If this is done in 2025/26 or 2026/27, such remittances will be taxed at a flat rate of 12% (temporary repatriation facility). 
• Only 50% of foreign income/gains arising in 2025/26 will be taxable. 
• Offshore assets may be rebased at their market value at 5 April 2019 for capital gains tax purposes. 

The abolishment of the domicile regime will also, potentially, remove existing income and capital gains tax protections for settlor-interested excluded property trusts and UK resident non-UK domiciled individuals will no longer be entitled to claim the remittance basis in respect of offshore trust distributions.  The temporary repatriation facility will not apply to pre-6 April 2025 foreign income and gains generated within trusts and trust structures. 

Should Labour win the election, they have proposed to remove the 50% limit for foreign income/gains arising in 2025/26, and prevent non-UK domiciled individuals from sheltering their offshore assets by settling them to an excluded property trust before 5 April 2025. 

Until the results of the election are announced, we won’t know which direction the changes will take, but we can be sure that there will be changes one way or another.  In the (very short) meantime, it is worth reviewing your current residence and domicile status and taking stock of your offshore assets: 

• Consider your short and long-term financial and residency intentions 

• Review residency status in the past five tax years (split years will be ignored for these purposes) 

• Update advisors (solicitors, accountants, tax advisors, financial advisors etc) of your current position and assets 

• Calculate the potential tax exposure if you make no changes 

• Consider current trust structures 

Even after the election, it is likely to be a few months before we are provided with further details or draft legislation, but it is always better to think about these things sooner rather than later. 

Previous articles on remittance basis can be found here

Our post budget article on the Non-Dom over haul can be found here

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