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Non-UK domiciled taxpayers (non-doms) have known since March 2024 that the remittance basis and the concept of domicile for UK tax purposes will be abolished. The announcement of the general election might have given some hope of a reprieve, but the reality is that a Labour government was always likely to follow through with the intended changes in some form. On 29 July 2024, the government published an that will be implemented. 

Effective date

In the outline document, the government has confirmed that changes will be applied from 6 April 2025 for income tax, capital gains tax (CGT) and inheritance tax (IHT) purposes for non-doms and settlor interested trusts, dashing hopes of a delay until 2026.

Foreign income and gains

In respect of individuals, a four-year foreign income and gains (FIG) tax exemption regime will be implemented, as proposed by the previous government. Under this regime, anyone who has not been UK resident for the 10 consecutive tax years prior to the later of their arrival or the 2025/26 tax year will be able to remit FIG tax-free to the UK during their first four tax years of tax residence in the UK. The government believes that this approach is internationally competitive.

As expected, there will be transitional provisions, but the previously proposed one-year 50% reduction in the foreign income subject to tax for those resident in the UK for more than four but less than 15 tax years will not be implemented. The temporary repatriation facility (TRF) will be retained for previous remittance basis users, but the policy document does not tell us at what rate remittances of income and gains earned prior to 6 April 2025 will be taxed, or for how long the TRF will be available – we will have to wait for the Budget on 30 October for that. A welcome addition to the TRF is the promise to explore the extension of the TRF to stockpiled gains and relevant income within offshore trust structures. Remittance basis users will also benefit from the rebasing of assets subject to CGT, meaning that they will only pay CGT on any increase in value from the rebasing date to the date of sale. The rebasing date will also be announced in the Budget. 

Protected trusts and inheritance tax

With regard to offshore trusts, the protected (excluded property) trust regime will be abolished from 6 April 2025 for those who do not qualify for the FIG regime. Whilst those affected will be disappointed with this, it was also the position under the Conservative proposals, and broadly will result in settlors being subject to income tax and CGT on the income and gains of such trusts.

In a comment which suggests that the government has listened to the concerns of stakeholders, including tax professionals, the anti-avoidance legislation that applies to offshore trusts will be reviewed. These provisions are extremely complex, and it is not surprising, therefore, that any changes to these rules will not occur until 6 April 2026 at the earliest. It will, however, give advisers a real headache in helping taxpayers plan for the changes to be implemented on 6 April 2025 under the existing anti-avoidance rules, which the government recognises are ambiguous, uncertain and not fit for purpose. Unfortunately, having provided certainty in the form of the overall framework, this review, whilst welcome, does leave uncertainty over the exact timings of certain key changes to how the rules will be applied, that taxpayers will require knowledge of to plan effectively.

The big issue which sets the Labour proposals apart from those of the Conservatives is that the IHT protection for trusts settled by non-doms will end. This was expected, but to see it in black and white will be a major blow for many non-doms, as it means that all assets owned by offshore trusts will be within the UK IHT regime once a settlor has been UK resident for 10 years. In another departure from the Conservatives’ proposals, there will not be any formal policy consultation on moving to the intended residence-based IHT regime, but there will be 'external engagement' with interested parties on the proposed legislation before the Budget, with the final policy design for the new rules to be published on 30 October, along with transitional arrangements. Consequently, all UK resident non-dom settlors who remain a beneficiary of an offshore trust should seek advice as to the implications and what they can do to mitigate their IHT exposure. 

There remain plenty of mitigation options, which may require non-doms to change their mindset as to how to plan for UK IHT, but it may be too late for some who have already decided to leave the UK.