The UK Budget 2024: Major Changes to Non-Dom Taxation

UK tax

27 Nov

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The UK Government has announced transformative changes to the taxation of non-domiciled individuals (“non-doms”) as part of the 2024 Autumn Budget. The revisions are set to take effect from 6 April 2025, marking a significant departure from the existing framework. Here's an in-depth look at what’s changing and what it means for non-doms in the UK.

End of the Traditional Non-Dom Tax Regime

The remittance basis of taxation, a cornerstone of the non-dom system, will be abolished. In its place, the government is introducing a Foreign Income and Gains (FIG) regime. This change reflects the UK's commitment to ensuring a fairer tax system while maintaining its global competitiveness.

Key Reforms

1. Foreign Income and Gains (FIG) Regime

Non-doms who are new UK residents will benefit from a four-year exemption on foreign income and gains.
After this period, non-doms will be taxed on their worldwide income and gains, bringing them in line with UK residents.
The changes aim to simplify the tax system while ensuring non-doms contribute fairly to the UK economy.

2. Inheritance Tax (IHT) Overhaul

IHT rules will shift from a domicile-based framework to a residence-based system.
Individuals who have been UK residents for 10 out of the past 20 tax years will be liable for IHT on their worldwide assets.
Trusts holding non-UK assets will also be affected, making estate planning a critical consideration for non-doms under the new rules.

3. Overseas Workday Relief (OWR) Reform

OWR will be extended to four years but capped at the lower of 30% of worldwide earnings or £300,000 per tax year.
This cap is designed to balance relief for genuine cross-border workers with the need to prevent tax avoidance.

Why These Changes Matter

The reform signals a shift towards a residence-based taxation system, ensuring that all UK residents, regardless of their domicile status, contribute equitably to the tax base. The abolition of the remittance basis will impact long-standing tax planning strategies and could influence decisions around relocating to the UK.

For non-doms, this means:

Short-Term Benefits: New UK residents can still benefit from a four-year exemption, providing a transition period.
Long-Term Impact: After four years, worldwide income, gains, and assets will come under UK taxation, significantly altering tax liabilities.

What Should Non-Doms Do?

These reforms underscore the importance of ProACTive tax planning:

Review Current Tax Arrangements: Work with tax advisers to understand how the changes will impact your finances.
Plan for the Future: Adjust investment strategies, consider trust structures, and explore opportunities to optimize tax efficiency under the new rules.

Looking Ahead

The UK Government's changes to non-dom taxation aim to modernize the tax system and promote fairness while maintaining the country's attractiveness to global talent. For non-doms, the key to navigating these reforms will be careful planning and staying informed about the evolving tax landscape.

If you're a non-dom or advising one, now is the time to act. Review the new rules, assess their implications, and prepare for the transition to a residence-based system by 2025.