Non-doms set to face new Inheritance Tax hurdles
Starting next year, non-doms will face a tougher tax climate as Labour takes steps to fix what they see as outdated tax perks and overhaul Inheritance Tax (IHT) rules.
Before the election, former Chancellor Jeremy Hunt revealed in the Spring Budget that the UK would be eliminating non-dom status and gradually phasing out the remittance basis.
The new Government is set to strengthen these plans with a “modern scheme” designed solely to support those who are “genuinely in the country for a short time.”
However, unlike the Conservatives, Labour does not intend to have the transitional phase, which offered a 50 per cent reduction in tax on foreign income for individuals losing access to the remittance basis during the first year of the new regime.
The new regime
The new resident-based regime for IHT is set to come into force on 6 April 2025, but full details on rebasing dates will not be available until the next Budget.
Domicile will no longer be the primary factor for inheritance tax liability. Instead, it’s proposed that inheritance tax will automatically apply to an individual’s global estate after they have been a UK tax resident for 10 years.
There will also be a 10-year “tail” for those who leave the UK after reaching this milestone.
These changes will impact the range of property subject to UK inheritance tax for individuals and trusts.
The new rules will not be applied retroactively, so any estates of individuals who pass away before the effective date will not be affected.
Additionally, there will be no further public consultation on these changes, as the Chancellor will consider responses from the previous Conservative non-dom consultation.
There will be a four-year foreign income and gains (FIG) regime, which will provide 100 per cent relief on FIG for new arrivals to the UK during their first four years of tax residence.
This does not apply if they were a UK tax resident in any of the 10 years immediately before their arrival.
UK residents who don’t qualify for the four-year FIG regime or choose not to use it will face capital gains tax (CGT) on their foreign gains as usual.
Temporary repatriation facility
Starting April 2025, income and gains within settlor-interested trust structures will no longer be tax-protected.
A new temporary repatriation facility (TRF) will be offered to individuals taxed on the remittance basis.
Those who have used the remittance basis before will still be able to bring back foreign income and gains accrued before 6 April 2025, and benefit from a reduced tax rate for a limited period after a remittance basis ends.
The rate and duration of this facility will be designed to make it as appealing as possible.
What’s next?
Further details on the regime will come in due course.
The first Labour Budget of this parliament is set to take place on 30 October 2024, which should confirm their plans and provide further details.
Contact our team if you have any questions.
