Non-doms -The Overhaul of UK Taxation for Non-Domiciled Individuals and Offshore Trusts

The Chancellor announced in the Spring Budget significant changes to the taxation of non-UK domiciled persons (non-doms) living in the UK. The measures will also affect traditional structures (offshore trusts etc.) settled to provide enduring tax benefits for non-doms who reside in the UK long term. Draft legislation is yet to be released and some proposals are subject to consultation meaning the actual effect of the provisions is not fully known. However, a number of the proposals will have effect from 6 April 2025 giving only a short window to analyse the impact and if appropriate advise on restructuring.  

Moving to the UK 

From 6 April 2025, the remittance basis of taxation will be abolished. In an individual’s first four years of being UK tax resident (after at least ten years of non-residence), they may elect not to pay tax on foreign income and gains.  The four year period starts from the first year of residency regardless of subsequent periods of non-residency. There will be no restrictions on the ability to remit foreign income and gains to the UK although opting for the treatment could mean the loss of the CGT annual exemption and the personal allowance for income tax.  

Already UK resident 

A non-doms who has been UK resident for more than four years will be subject to UK tax on their worldwide income and gains (from 6 April 2025). Transitional provisions apply for one year (2025/26) taxing only fifty percent of foreign income for those eligible for the remittance basis but not the new regime. The transitional provisions won’t apply to gains.  

Personally held assets can be re-based to their 5 April 2019 value. Rebasing will apply to those remaining non-UK domiciled and not deemed domiciled (as at 5 April 2025).  

Remittance basis users will have a temporary reduced 12% rate of tax on remittances, whether income or gains, between 6 April 2025 and 5 April 2027. The lower tax rate is intended to incentivise bringing funds to the UK. The incentive may be advantageous for those that can live from capital.   

Trusts 

The trust protection for those settled by non-doms before becoming deemed domiciled will be abolished from 6 April 2025. Broadly, the protections allowed the settlor/beneficiary to only be taxed if and when receiving benefit from the settlement. The provisions do not include any grandfathering i.e. protection for trust created before a particular date. From 6 April 2025, the treatment for non-UK domiciled persons and UK domiciled persons will be aligned meaning the potential for income and gains to be taxed on an arising basis.  The treatment won’t apply where the settlor is within their first four years of residency.  

Inheritance tax (“IHT”) 

The proposed changes to IHT will be subject to consultation. However, it is intended to base the charge on residency (as opposed to domicile): IHT would be due on chargeable events on worldwide assets after being resident for ten years.  It is also proposed that the exposure would cease after ten years of non-UK residency. The proposed regime would apply to a UK domiciliary leaving the UK to take up residency elsewhere.  

It is also proposed to link the IHT status of trusts to the settlor’s residency status: trusts will be subject to IHT if the settlor meets the residence criteria when an IHT charge might arise, say on the settlor’s death or the tenth anniversary.  

A trust settled by a non-dom person before 6 April 2025, may continue to benefit from its ‘excluded property status’.  

Further considerations for non-doms

The changes dramatically change (again) the regime applying to non-UK domiciliaries. Whilst the proposals appear clear, upon thinking them through a number of concerns, planning opportunities and threats spring to mind: 

Another concern is that the change of regime, will result in a considerable amount of structural changes as well as potentially funds being brought to the UK. The changes will themselves create a need for HMRC to consider tax risks as well potentially challenge the past tax treatment. HMRC has already identified the potential to challenge domicile status and offshore settlements based on the transfer of assets abroad legislation. Any steps taken now may result in HMRC becoming more intrigued about the past and as a result, there will be a need to check tax risks.  

Furthermore, there appears to be a number of structures and products that may prevent tax charges arising. Whilst the regime may align the treatment of non-doms and UK domiciles, there is still scope for offshore structuring although it is likely to only be available for the very wealthy. 

Contact the team to discuss what this means for you and what steps you need to take if you have been effected by these changes here

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This article on non-doms was written by Chartered Tax Adviser Anton Lane

non-dom – Non-dom describes a UK resident whose permanent home – or domicile – for tax purposes is outside the UK. It refers to a person’s tax status, and has nothing to do with their nationality, citizenship or resident status – although it can be affected by these factors. A non-dom only pays UK tax on the money they earn in the UK