Big changes are coming to how foreign income and gains are taxed in the UK. From 6 April 2025, the remittance basis of tax—which has allowed non-doms to only pay tax on foreign income and gains when remitted to the UK—will be replaced with a new residence-based regime.
This shift could have significant implications, especially for those currently benefiting from the remittance basis. Let’s break down what’s changing and how it could affect you.
What’s Changing?
Under the current rules, non-domiciled individuals who are UK residents can opt to pay tax on foreign income and gains only when they bring that money into the UK, in exchange for a remittance fee. This fee is £30,000 for individuals who’ve been resident for at least 7 out of the last 9 years, and £60,000 for those resident for 12 out of the last 14 years.
But starting from 6 April 2025, this system will be scrapped, and a new regime will take its place.
The New Residence-Based Regime
From April 2025, all UK residents, regardless of their domicile, will be taxed on their worldwide income. However, there are some key exemptions and transitional rules:
- New arrivals to the UK will benefit from a 100% tax exemption on foreign income and gains for their first four years of residence, provided they haven’t been UK residents in the previous 10 years.
- A form of Overseas Workday Relief will continue to apply, offering relief from UK tax for earnings from work done abroad, provided those earnings are not brought into the UK.
However, it’s important to note that a 50% reduction in the foreign income subject to UK tax, originally proposed for the first year of the new regime, will no longer be going ahead.
What About Capital Gains?
For those unable to benefit from the four-year new arrival exemption, capital gains tax (CGT) will apply to foreign gains from 6 April 2025.
If you’ve been taxed under the remittance basis, UK CGT will only apply to foreign gains that arise after a “rebasing date,” which is expected to be announced in the October 2024 Budget.
What Happens to Pre-2025 Foreign Income and Gains?
Foreign income and gains arising before 6 April 2025, while the remittance basis still applied, will continue to be taxed only when remitted to the UK. This includes individuals eligible for the four-year new arrival exemption.
Additionally, there will be a temporary repatriation facility, allowing those previously taxed under the remittance basis to bring in foreign income and gains earned before April 2025 at a reduced tax rate, for a limited time after the new regime takes effect. The exact details of this period are yet to be confirmed.
Inheritance Tax: A Major Shift
The way inheritance tax (IHT) is applied is also changing. From 6 April 2025, IHT will shift from being based on domicile to being based on residence. This change will alter which assets are subject to UK inheritance tax.
- A basic test will be introduced to determine whether non-UK assets are liable for UK IHT. This test will depend on whether the individual has been resident in the UK for the 10 years before death or another chargeable event.
- There will also be a proviso to keep an individual within the scope of UK IHT for 10 years after they leave the UK.
- The use of excluded property trusts, often used to keep assets outside of UK IHT, will also be brought to an end under the new rules.
What Does This Mean for You?
With the remittance basis coming to an end and these significant changes to inheritance tax, it’s crucial to understand how these new rules could impact you, especially if you’ve relied on the remittance basis in the past.
If you’re concerned about how the new residence-based regime might affect your tax situation or need help navigating the upcoming changes, get in touch with Jon and the team today. We can help you plan ahead and ensure you’re fully prepared for the changes in April 2025.
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