The UK’s proposals for non-doms and their structures (as of 10 March 2025)

Budget 2024 – Non-dom

Budget 2024 – Non-dom proposalsattractive for individuals who are designating part of one or more mixed funds and want to keep thoseamounts outside of the UK.Very broadly, a TRF Capital Account is an ordinary bank account (which must not have more than £10 in it tobegin with) which the individual nominates to serve as a TRF Capital Account. That nomination is maderetrospectively in a tax return.A transfer from (a) a mixed fund which contains TRF Capital into (b) a TRF Capital Account will alwaystransfer TRF Capital first to the extent possible. Transfers of anything other than TRF Capital will cause theaccount to lose its special status unless remedied within 30 days (and there are limits on how many errorscan be remedied this way).TRF Capital Accounts cannot be used to make investments (they must be ordinary cash accounts) so weexpect them to be used simply to collate TRF Capital which is then transferred out again, perhaps into aninvestment account.The “Trust TRF” in more detailCriteria to be availableWhat it can apply toHow to claimEffect of a claimThe individual must have been subject to the remittance basis prior to 6 April 2025.They must also receive a capital payment (essentially any form of benefit other thanan income distribution) from a trust between 6 April 2025 and 5 April 2028.To the extent that a capital payment from a non-UK resident trust (or a migrated trust)“matches” to income and gains within the trust, those income and/or gains are(broadly speaking) attributed to the beneficiary who is then subject to income tax orcapital gains tax on them as appropriate. The applicable tax rates can be as high as45%.The Trust TRF can be used to reduce the tax rate on the amount of those matchedincome and gains to the extent that they arose within the structure prior to 6 April2025.Where both pre and post 6 April 2025 income and/or gains and are available to match,the new rules should generally result in the pre-6 April 2025 income and gainsmatching first. If, despite this, any part of the capital payment still matches to incomeor gains arising on or after 6 April 2025 that part cannot be designated (and so will besubject to income tax or capital gains tax at the usual rates).The Trust TRF cannot be used in relation to income distributions.A claim must be made to “designate” the relevant amount.The deadline is 31 January two years after the end of the relevant tax year (so adesignation for a capital payment made in 2025/26 must be made by 31 Jan 2028).The designated amount of matched income and gains are subject to the “TRF Charge”of 12% (2025/26 and 2026/27) or 15% (2027/28).The TRF Charge replaces the normal income tax/capital gains tax charge which wouldarise on the matched income or gains. Note that IHT will need to be consideredseparately.Again, the TRF Charge is effectively added to the individual’s income tax liability andso is payable by 31 January after the end of the relevant tax year (so the TRF Chargefor 2025/26 will be due by 31 Jan 2027).This could be a very valuable relief. For example, if a £150,000 capital distribution is made to a beneficiaryand would match to £100,000 of income and £50,000 of gains then the beneficiary could easily be looking ata tax charge of £57,000 under the existing rules (45% on the £100,000 and 24% on the £50,000). Variouselements of the matching rules could even result in a greater charge than that.In contrast, if the £100,000 of income and £50,000 of gains all arose pre-6 April 2025 then the Trust TRFmight simply tax the whole £150,000 at a rate of 12% which would be only £18,000.7

Budget 2024 – Non-dom proposalsChanges to the remittance basis inrelation to existing foreign income andgainsAlthough the remittance basis is being abolishedfor income and gains arising on or after 6 April2025 it will remain relevant to foreign income andgains which have arisen under the current regime.This will have a number of practical implications,including that those who have unremitted foreignincome and gains will be incentivised to maintainexisting segregated account structures.Somewhat surprisingly, the Finance Bill will alsomake changes to what constitutes a “remittance”of existing foreign income and gains.Very broadly, foreign income and gains will onlybe remitted under the current rules if either:They are brought into, or used in, the UK; orThey are used to pay for a service which isprovided in the UK.Also, foreign income and gains can effectivelyonly be remitted once.The current draft legislation makes a number ofchanges to the definition of a remittance including:• Adding a new category of remittance whichwill apply if foreign income and gains are usedoutside of the UK in a manner which confers abenefit on a relevant person in the UK;• New rules for when intangible property isdeemed to have been brought into the UK;and• Changing the rule that foreign income andgains can only be remitted once, such thatfurther remittances are possible unless anduntil the foreign income and gains actuallytrigger UK tax.The exact scope of some of these changes isunclear and representations have been made toHMRC asking that they be dropped or deferred togive the non-dom community more certainty.In the meantime, anyone who does not intend touse the TRF in relation to all of their existingforeign income and gains should take advice as tothe potential impact of these changes on them.Inheritance tax (“IHT”)A person’s exposure to IHT is currently tested byreference to domicile and “deemed domicile”.From 6 April 2025 the UK will move to aresidence-based system instead.The term “Long-Term Resident” is used todescribe someone who satisfies the newresidence-based test.It is worth flagging that the changes to IHT arerelevant to everyone, not just those who have atone time or another been domiciled outside of theUK.Comparing the old and new regimesFor the purposes of this article “non-UK assets”includes both non-UK situated assets and someUK situated assets which benefit from special IHTtreatment (such as holdings in authorised unittrusts) whilst “UK assets” includes those derivingtheir value from UK residential property (to theextent of such derivation).The IHT treatment of some other assets (such asUK gilts) is already tested by reference to ordinarytax residence (rather than Long-Term Residence)and continue to be tested in that way.The current, domicile based, regimeStatusUK domiciled or deemed domiciledOtherwiseIHT exposureIHT on UK assets and non-UK assetsIHT on UK assets onlyThe new, residency based, regimeStatus“Long-Term Resident”OtherwiseIHT exposureIHT on UK assets and non-UK assetsIHT on UK assets only8