2024 UK Budget – Non-Domicile

The 2024 UK Budget was obviously more politically focused considering the upcoming General Election. The reforms to domicile, remittance basis and inheritance tax are due to be implemented from 6 April 2025 which would be following the outcome of the General Election – which adds uncertainty for the final rules.

At this stage the draft legislative changes are yet to be published. It is therefore important to note that there will likely be further amendments/changes to the planned reforms following the General Election and legislative review process before these are implemented in April 2025.

Announcement and UK Treasury documents:

The current plans as per the Budget announcement and Treasury technical note for implementation as of 6 April 2025 are as follows:

1. The UK will move away from the historic principle of domicile and move to a residency-based system of taxation.
2. The remittance basis of taxation will be abolished.
3. A new 4-year relief from taxation of non-UK income will become available for individuals that become UK resident after a period of non-residency of at least 10 years.
4. Overseas Workday Relief (OWR) will be retained with some modifications which would allow claimants to remit the non-UK employment income without charge.
5. Trust protections for settlor interested trust structures will no longer be available in respect of income and capital gains tax.
6. Inheritance Tax will also move to a residency-based system.

Transitional relief:

The following transitional reliefs have been documented in the Treasury technical note:

1. Temporary Repatriation Facility – the intention is to allow a reduced rate of 12% tax on remittances of non-UK and gains arising before 6 April 2025 in the next two tax year [2025-26 and 2026-27].
2. For individuals that move from the remittance basis of taxation to worldwide basis at 6 April 2025 there is planned to be a relief applying for the 2025-26 tax year only. The proposal is that for people in this position they will receive a deduction of 50% of their foreign income for tax purposes. Note that capital gains are not currently included in this relie
3. Capital Gains Tax Rebasing – For people that have claimed the remittance basis in the past and are not UK domiciled or deemed domiciled at 5 April 2025 there will be rebasing available for capital gains tax purposes. The rebasing date is planned to be 5 April 2019.

Inheritance Tax:

It is important to note that the announced inheritance tax changes, already subject to the General Election outcome and legislative drafting, are also subject to a separate IHT consultation before the planned implementation on 6 April 2025.

The current announced changes are as follows:

1. The concept of domicile will be abolished and replaced with a residency-based system.
2. Individuals would become subject to UK inheritance tax on their worldwide assets after being resident in the UK for 10 years.
3. Once an individual becomes subject to UK inheritance tax on their worldwide assets, they will remain in the scope of UK inheritance tax for 10 years after they become non-UK resident – known as the “tail” provision.
4. It is understood that UK situs assets will remain in charge of UK inheritance tax regardless of residency.
5. The Treasury technical note states that non-UK property settled by a non-domiciled individual before 6 April 2025 into trust will continue to receive inheritance tax protection going forward. However, it important to note that if the trust is settlor interested the income and capital gains protections will no longer apply and will therefore be allocated to the UK resident settlor.
6. The tax treatment of new trusts settled after 6 April 2025 will be subject to the proposed consultation.

Some individuals may consider trust planning ahead of the planned changes depending on their circumstances to lock in IHT protection. However, this should be carefully reviewed due to the planned changes to settlor interested trust protections.