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

Budget 2024 – Non-dom

Budget 2024 – Non-dom proposalsThe Autumn Budget confirmed that theUK’s non-dom regime is being replacedwith effect from 6 April 2025 and also setout various other changes relevant toindividuals and structures with aninternational connection. We have sincehad two rounds of amendments to thedraft legislation implementing thesechanges and individuals and trustees whoare impacted should be acting now toprepare accordingly.The UK’s tax regime for non-domiciled individualsand their structures will change from 6 April 2025and be replaced by a new regime based onresidence rather than domicile. At the same time,significant changes will be made to inheritance taxand to the taxation of trusts.This article summarises where the proposedchanges stand as of 10 March 2025. It is anupdated version of our summary from October2024 and takes into account both changes madeto the draft legislation since then and theadditional analysis which we have carried out inthe meantime.Whilst the proposals remain in draft form at thedate of publication, the Finance Bill implementingthem has passed the report stage in Parliamentand so is likely to be enacted in its current form.Most clients will have sufficient information to plansensibly on the basis of this draft legislation andshould be doing so already. Failing to consideroptions now could result in missed opportunitiesas some courses of action will only be viablebefore the 6th of April 2025.SummaryThe latest version of the proposals will not be asbad as some had feared but nor will they be asfavourable as others had hoped. Whatever one’sviews of them, they represent a very materialchange from the status quo and any individuals ortrustees with an international connection shouldbe considering how they could be impacted.Summary of changes for individualsFirst of all, the remittance basis regime will bereplaced with effect from 6 April 2025. In its place,those moving to the UK will be able to claim a newspecial status (the “4-year FIG regime”) in theirfirst four years of UK residence. To the extent it isclaimed, the 4-year FIG regime will exempt non-UK source income and gains (and someemployment income relating to duties performedabroad) from income tax and capital gains tax andthe relieved income and gains can be used in theUK without further tax.There will be two transitional reliefs for individuals,one which will offer a form of rebasing for foreignassets and another (the “temporary repatriationfacility” or “TRF”) which will allow:• foreign income and gains which have arisenunder the current remittance regime to beremitted and taxed at a relatively low flat rate(12% or 15% as compared to a maximum“normal” rate of 45%); and• certain distributions made from non-UKresident trusts between 6 April 2025 and 5April 2028 to be taxed at those same flat rates(12% or 15%).The UK’s inheritance tax (“IHT”) rules are alsogoing to change, again with effect from 6 April2025, such that individuals will be exposed to IHTon their worldwide assets if they have been UKtax resident for 10 or more of the previous 20 taxyears (this new status is referred to as being“Long-Term Resident”).Once an individual becomes “Long-TermResident” they will retain that status for as long asthey are UK tax resident and for a certain numberof tax years after they cease to be UK taxresident. The length of this “tail” will range from 3to 10 tax years depending on how long they wereUK tax resident prior to leaving.Summary of changes for trustsThere will also be significant changes to thetaxation of many non-UK resident trusts.SettlorsFrom 6 April 2025, “protected” status will bestripped from non-UK resident trusts whichcurrently have it and this could result in futureincome and gains from those trusts beingattributed to (and taxable on) any living, UKresident settlor.Whether (and the extent to which) any givensettlor is impacted by this will depend on a rangeof factors including the beneficial class of thetrust, its investment approach and whether certaindefences are available to prevent attribution.The 4-year FIG regime will also be available tosome settlors in connection with the income andgains which might otherwise be taxable on them.The trust itselfIn principle the exposure of the trustee and anyunderlying non-UK resident company to UKincome tax, capital gains tax or corporation tax (asappropriate) is not changing.However, the IHT position is very different. Inmost cases if (and for so long as) the settlor of atrust becomes “Long-Term Resident” (see thesummary of changes for individuals above) the1

Budget 2024 – Non-dom proposalstrust fund will also be exposed to IHT at least tosome extent.For trusts in which one or more beneficiaries havea fixed interest (generally known as “life-interesttrusts”) the test is more complicated and can alsobe impacted by the Long-Term Resident status ofany beneficiaries with such fixed interests.BeneficiariesIf the settlor becomes taxable on a trust’s incomeand gains, those should not be available to“match” to distributions so the settlor’s position willhave a bearing on the taxation of beneficiaries aswell.Beneficiaries should also consider whether theycan use the 4-year FIG regime or the TRF inrelation to distributions made to them.If a trust is brought within the scope of IHT, somecapital distributions and other benefits couldtrigger IHT charges of up to 6%.TimingUnless expressly stated otherwise, all of thechanges described in this article are due to comeinto effect on 6 April 2025.The proposed changes forindividualsThe new “4-year FIG regime”The existing income tax and capital gains taxregime for non-doms (the remittance basis) will beabolished for foreign income and gains arising onor after 6 April 2025.It will be replaced by a new special status whichcan be claimed during the first four years of taxresidency in the UK.Those eligible for the new status are now referredto in the draft legislation as “Qualifying NewResidents” and it may be that the new regimebecomes known as the “Qualifying New Residentsregime” in due course. However, it was originallydescribed as the “4-year FIG regime” in theGovernment’s guidance documents and we haveused that name in this article.2