The measure
The government will abolish the existing regime for taxing non-UK domiciled individuals and introduce a new residence-based regime for foreign income and gains (“FIG”) from 6 April 2025. Transitional rules will apply to those who are already paying tax under the UK’s existing tax regime. A new residence-based system for inheritance tax will also apply from 6 April 2025.
Much was already known about Labour’s intended approach, from its policy paper published on 29 July 2024 and its statements in the run up the 2024 General Election. Today the chancellor announced further details while also confirming the government’s plans:
- From 6 April 2025, the existing remittance basis system of taxing non-UK domiciled individuals on FIG will be abolished. Instead, individuals will be exempt from UK taxation of eligible FIG for the first four tax years of residency. Individuals must have been non-UK resident throughout the previous ten tax years to be eligible for the new regime.
- All former remittance basis users not eligible for the four-year FIG regime will pay tax at the same rate as other UK resident individuals on any newly arising FIG. Former remittance basis users will continue to pay tax on FIG that arose before 6 April 2025 that they remit to the UK.
- Transitional arrangements are to include:
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- A Temporary Repatriation Facility (“TRF”) from 6 April 2025 to allow FIG received pre-6 April 2025, where the remittance basis applies, to be subject to a reduced tax rate on remittance for a limited time period. Today the chancellor announced that designated amounts will be charged at a rate of 12% in the 2025/26 and 2026/27 tax years rising to 15% in the 2027/28 tax year. From 6 April 2025, the TRF will also be available for qualifying UK resident settlors or individuals who receive a benefit from an offshore trust structure during the 3 tax years. Individuals who make a designation under the TRF and have paid the TRF tax charge will have the freedom to choose in which year to remit the designated amounts to the UK. This does not need to be in the TRF window and could be in a later tax year.
- Current and past remittance basis users will be able to rebase the value of foreign capital assets owned personally to a specific rebasing date for capital gains tax purposes on disposal. Today the chancellor announced that users will be able to rebase personally held foreign assets to 5 April 2017 on disposal where certain conditions are met.
- The government is retaining a form of overseas workdays relief. Today the chancellor announced overseas workday relief will be extended to a four-year period (was previously announced that this would be three years) and will be subject to an annual financial limit of the lower of £300,000 or 30% of net employment income. From 6 April 2025, eligibility for overseas workday relief will be primarily based on whether employees are eligible for the four-year FIG regime.
- The current domicile-based inheritance tax system is to be replaced with a new residence-based system from 6 April 2025. Individuals who have been UK resident for ten years prior to the tax year in which the chargeable event (including death) arises will be subject to inheritance tax on worldwide assets. The chancellor confirmed that the test for whether non-UK assets are in scope for inheritance tax will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises. The time the individual remains in scope after leaving the UK will be shortened where they have only been resident in the UK for between 10 and 19 years.
- Changes will also be made to the taxation of trusts settled by non-UK domiciled individuals. These are to include:
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- Removal of the existing regime for taxing income and gains received by trusts (the protected trust regime) for individuals who have settled assets on trusts from which they can benefit who are not eligible for the new four-year regime for FIG, and
- Extension of inheritance tax to non-UK assets held in trust, to the extent these are not already taxable. From 6 April 2025, the excluded property status of non-UK settled assets will not be fixed at the time the assets are added to the settlement. Instead, they will only be excluded property (and so not subject to inheritance tax charges) at times when the settlor is not long-term resident. When a settlor is long-term resident, any assets they have settled (even when not long-term resident) will be subject to inheritance tax.
- The government has published a Call for Evidence to better understand where there is ambiguity, undue complexity and inconsistency in the application of the offshore anti-avoidance legislation including the transfer of assets abroad and settlements legislation.
Draft legislation has been published on some of the above points for technical consultation. The draft legislation will contain further detail on the above points.
Who will be affected?
Current non-UK domiciled individuals who remain resident in the UK in 2025/26 and individuals who have arrived in the UK since 6 April 2022, or who come to the UK following these announcements, who have not been tax-resident in the UK in any of the 10 tax years prior to the year of arrival.
When will the measure come into effect?
The new residence-based taxation regimes for FIG and inheritance tax will apply from 6 April 2025.
It is not anticipated that any transfer of assets abroad or settlements legislation changes will be implemented before the 2026/27 tax year.