Every year, the Chancellor of the Exchequer (our ‘Secretary of State for Finance’) delivers a financial plan for the forthcoming years. This year, there were two significant changes that will be of interest to international advisers.
The first is a change to the income and capital gains tax rules. Currently a person who is considered non-UK domiciled is able to take advantage of what is called the remittance basis regime. This exempts them from income and capital gains tax on any income or capital gains made abroad, provided those are then also left abroad. If they are transferred (‘remitted’) to the UK, then UK tax will be payable. A person can take advantage of this regime until they become deemed domiciled, which occurs if they have been UK resident in 15 out of the previous 20 tax years.
From 6 April 2025, the beginning of our tax year, this regime will be entirely abolished. Instead, a person’s foreign income and gains (‘FIG’) will be exempt from UK tax, whether brought to the UK or not, for a period of four years. After that, worldwide income and gains will be taxed in the UK. This only applies to people who have not been UK resident in the UK in the previous ten years.
The second main change relates to inheritance tax. Currently inheritance tax is charged on a person’s worldwide assets if they are domiciled or deemed domiciled in the UK. Otherwise, their non-UK assets are outside the scope of UK inheritance tax. From 6 April 2025, a new residence-based system will be introduced. An individual will be within the scope of IHT (on non-UK assets) if they have been UK resident for 10 out of the previous 20 tax years – they will be called a “long-term resident”. Generally, they will continue to be within the scope of IHT for ten consecutive years after leaving the UK (much longer than currently). However, there is ‘tapering’ so that this tail is shortened for people who have been UK resident for between 10 and 19 years.
This means that the concept of ‘domicile’ will completely disappear for UK tax purposes, so there are likely to be fewer references to ‘non-doms’. However, the concept will still be relevant for succession purposes, and will remain the principle connecting factor in matters of UK Private International Law.
By Christopher Salomons, Russell-Cooke LLP, London (November 2024)
