Everything We Know From Labour About The 2025/26 Non-Dom Changes

Contributors

BLOG31st Jul 2024

By Lynn Gracie

Lynn Gracie, Private Client Partner and author of blog about non-dom changes

Contact Lynn Gracie

or reach out to a member of our Tax Investigations, International, Private Client team.

This week we have received the first significant update from the new government on how the regime for non-UK domiciled and internationally mobile individuals may look under their stewardship. It’s helpful then, to revisit the initial proposed non-dom changes from the Spring 2024 budget and consider what Labour have proposed with their own the non-dom changes and the impact they might have.

What Non-Dom Changes have been proposed?

Back in the Spring significant changes to the way in which non-domiciled individuals are to be taxed in the UK were announced by the then Conservative government who sought to raise additional funds via the changes I covered these proposed non-dom changes in my earlier blog. The Spring 2024 Budget announcements were to an extent unexpected, but while the changes proposed were significant, they did offer some generous transitional provisions for impacted individuals.

Since the Spring Budget 2024, both pre and post-election, there has been much speculation and discussion (which I have previously discussed in our blog about Labour introducing a 4 year tax residency), as to which of the changes a Labour Government may adopt. We now have a clearer idea of how the post 6 April 2025 tax regime may work for non-doms and internationally mobile individuals, and it seems, a step towards certainty.

The below table illustrates the Spring Budget 2024 proposed changes, the Labour Government July 2024 updates on non-dom changes, and the headline impact of the July 2024 updates.

Spring Budget 2024 proposals

Labour Government July 2024 updates

Impact of non-dom changes
Removal of the remittance basis of taxation and a new temporary regime 4-year foreign income and gains (FIG) regime. Proposal to be adopted. 100% relief for foreign income and gains for new arrivals in the UK, or their first 4 tax years where they have not been UK tax resident in any of the 10 consecutive years prior to their arrival.
Transitional provision: 50% reduction in foreign income subject to UK tax for the first tax year (2025/26) of the new regime when an individual loses access to the remittance basis of taxation. Transitional provision will not be adopted. Non-domiciled individuals who claim the remittance basis in 2024/25, will be subject to the new regime from 6 April 2025. Those who are not within the 4-year FIG regime will pay UK tax on their worldwide sources of income and gains without a reduction in the applicable tax rates.
Transitional provision: A Temporary Remittance Facility (TRF) to be introduced for remittances in 2025/26 and 2026/27 of income / gains previously sheltered by the remittance basis at a rate of 12%. A new TRF will be introduced for a limited time at a reduced tax rate. The length of time and rate is to be confirmed. It appears then that there will still be an incentive to remit previously sheltered income and gains to the UK for former remittance basis users.
Transitional provision: Remittance basis users will be able to ‘rebase’ their foreign assets for Capital Gains Tax (CGT) purposes to 5 April 2019 values. Rebasing is to be adopted, but the date of rebasing is to be confirmed. There will be some CGT benefit to past or current remittance basis users who are outside of the 4-year FIG regime and dispose of assets post 6 April 2025.
Trust protections for tax on income and gains (for settlors of offshore trust with protected trust status) to be removed. Proposal to be adopted. From 6 April 2025, settlors of offshore trusts will be subject to UK tax on income and gains arising within the structure, unless the settlor is within the 4-year FIG regime.
Intention to move from a domicile regime for Inheritance Tax (IHT) purposes to a residency-based regime. Ten-year tail to be introduced for individuals who depart the UK ensuring that their assets remain within the scope of IHT.

 

The IHT regime is to be subject to a consultation paper.

 Committed to replace the current regime with a residence-based regime.

 

IHT changes are not to be subject to a formal consultation, but the government will consider existing stakeholder feedback and carry out further external engagement over the summer of 2024.

 From 6 April 2025 the basic test for the application of IHT at present is expected to be whether an individual has been tax resident in the UK for 10 years prior to death, with a provision to keep a person within the scope of IHT for 10 years after leaving the UK.

 

This change would bring long term UK resident non-doms into the scope of UK IHT.
Excluded property status for IHT purposes for assets contained in an existing Trust to be retained. New regime for IHT purposes is to be introduced as above, but excluded property status for trusts is to be ended. There is an acknowledgement that current excluded property trusts have been established based on current rules, and as such, they are considering how these changes can be introduced in respect of these Trusts. Non-UK domiciled individuals who are settlors of settlor interested Trusts will need to consider whether under the new proposed rules, the value of the Trust is brought within the scope of IHT.
Overseas Workday Relief (OWR) to be reformed based on the new residence-based regime. To continue to be available to provide income tax relief for the first three years of UK residence for individuals who work both in the UK and overseas. A form of OWR will be retained. There will be engagement with stakeholders on the design of this relief. To be monitored by those who are currently claiming OWR or those considering relocating to the UK but who work internationally.
The Transfer of Assets Abroad and Settlements anti-avoidance legislation will be reviewed in an attempt to modernise the rules, make them simpler to follow and ensure that they are effective.

 

These rules are not likely to be subject to change until 6 April 2026.

 Individuals impacted by the anti-avoidance rules will need to ensure that they understand the way in which any proposed changes will impact the way they are subject to UK tax.

When will we have further details ABOUT NON-DOM CHANGES?

As of yet, we don’t not have any draft legislation or detailed guidance published. We now expect further details to be announced, as part of Labour’s first Budget statement, on 30 October 2024.

What THE PROPOSED NON-DOM CHANGES MEAN FOR YOU

There will be a short time period in which to consider the changes which are to be introduced from 6 April 2025, therefore individuals who are impacted by the above should plan ahead and should consider their affairs, including Trust structures which are currently excluded property trusts.

Our Private Client International Tax team have significant experience in this area of UK tax law and are perfectly placed to help with any UK residence or non-dom aspects. Please do not hesitate to get in touch with Lynn Gracie,  Joel Nuttall, or a member of our Private Client Team if you would like to discuss how we can help.

How AAB can help

Private Clients & High Net Worth Individuals

Our team support a diverse array of individuals such as employed professionals, business owners, families and international sports stars. As AAB clients, they all benefit from absolute confidentiality and share a unified goal of optimising and safeguarding their personal wealth. Our services extend far beyond mere tax return completion. In addition to standard personal tax compliance, our dedicated team of personal tax specialists delivers dependable and practical tax advice, ensuring full compliance and optimal positioning.

View our private client services

Contributors

Related services

Sign up for the latest industry insights

  1. Blog5th Dec 2024

    Scottish budget 2025/26

    Scottish Budget 2025/26 – What are the Key Tax Takeaways

    Compared to Labour’s Autumn statement, the Scottish Budget had relatively few tax policy announcements, focusing instead on their plans to spend revenue in this financial year. The key Scottish devolved tax changes set out by the SNP were as follows:…

    By Lynn Gracie and Jill Walker

    View more

  2. Blog6th Nov 2024

    Lynn Gracie, Private Client Partner and author of blog about non-dom changes

    Residence regime replaces Domicile: Who will be the Winners and Losers?

    Some would say that Rachel Reeves simply copied the Conservative Spring budget, which included their surprise proposal to abolish Tax Domicile, whilst others would say the Conservatives copied Labour’s plans. Either way, the Autumn Statement delivered by Ms Reeves, finally…

    By Lynn Gracie

    View more

  3. Blog24th Oct 2024

    Non UK resident

    What Are The Tax Implications Of Being Non UK Resident

    If you’re a Non UK Resident, understanding how your residency status impacts your tax obligations is crucial. Being a non-UK resident can have significant effects on your financial responsibilities, from Income Tax “IT” to Capital Gains Tax “CGT”. Navigating these…

    By Lynn Gracie and Carol Edwards

    View more

  4. Blog4th Sep 2024

    Italian Tax Regime blog image

    Italy – One Of The Most Attractive Tax Destinations For The Wealthy Suddenly Got More Expensive

    La dolce vita translates to ‘the sweet life’, and it’s far more than just a phrase in Italy, it really does represent an entire lifestyle associated with their culture and way of life. Italians have a particular appreciation of celebrating…

    By Lynn Gracie and Carol Edwards

    View more