Labour government announces non-domicile tax regime changes in the UK

Following the new Chancellor’s speech in the House of Commons on 29 July 2024 the new Labour government then published a number of tax policy papers and consultations and confirmed that their first budget of this new Parliament will be held on Wednesday 30 October 2024. Amongst those published was a policy paper entitled “Changes to the taxation of non-UK domiciled individuals”.

This policy papers attempts to provide some further clarity on how the new Labour government intends to reform the taxation of non-UK domiciled individuals.

What non-domicile tax changes have been announced by the new Government?

• Firstly, the government has confirmed that it intends to implement a four-year foreign income and gains (“FIG”) regime from 6 April 2025. This will be broadly in line with that announced by the previous Conservative government. Under the new regime foreign income and gains will be exempt from UK tax for the initial four years  of UK residency, provided that the individuals have resided outside the UK for a at least ten years prior to their move. Additionally, any FIG accrued prior to 6 April 2025 that was shielded from UK tax, under the current remittance basis will be taxed when remitted to the UK.
• The Labour government will also implement the proposal for a Temporary Repatriation Facility (“TRF”), allowing former remittance basis users to remit FIG arising before 6 April 2025 at a reduced rate for a set period. However, both the remittance tax rate (previously announced to be 12%) and the period, previously announced to cover two tax years during which the TRF will be available will be confirmed later.
• The government intends to retain a form of Overseas Workday Relief.  It will confirm further details and outline how the relief will operate at the budget on 30 October 2024.
• The Labour Government will also introduce a rebasing of foreign capital assets for previous remittance basis users. However, whilst the Conservatives proposed a rebasing date of 5 April 2019, the Labour government are still evaluating an appropriate date and will announce the details on 30 October 2024.

What about the proposals announced by the previous Conservative Government?

• The new government has decided against adopting the Conservative proposal for a tax exemption covering 50% of foreign income arising in the first tax year where a non-UK domiciled taxpayer fails to qualify for the new FIG regime and moves to the arising basis of taxation.
• The government is considering expanding the scope of what will qualify under the Temporary Repatriation Facility to include income and stockpiled gains in overseas structures.
  The rebasing date of foreign assets may not be 5 April 2019, as the government has said it is considering the appropriate date to use.
• The government will undertake a review of certain anti-avoidance legislation, primarily focused on the “Transfer of Assets Abroad” and the “Settlements” provisions. The government do not anticipate implementing any changes until at least 6 April 2026.
• The government will introduce a new residence-based inheritance tax (“IHT”) regime from 6 April 2025 and has confirmed that it will not consult formally on these changes. It is expected that foreign assets will be within the scope of IHT where an individual has been UK resident for ten years prior to a chargeable event and, subsequently, for a period of ten years after leaving the UK.
• The government intends to end the favourable tax treatment enjoyed by “excluded property trusts” with details being announced on 30 October 2024. But it acknowledges that this will affect people who have already set up structures based on current rules and will consider how transitional rules may be implemented for those structures – implying that the effect of the changes will be mitigated for trusts already in existence.

What does this all mean for non-doms?

We will have to wait for Rachel Reeves’ first budget on 30 October 2024 and review the draft legislation to fully understand these new rules but we are not expecting any significant changes from these policy announcements.

It would appear that those who have previously set up excluded property trusts may receive some transitional relief to mitigate the potential exposure to inheritance tax liability on the value of assets in their trusts. However, we will have to wait for more detailed information to confirm this.

The Government appears determined to press ahead with the IHT proposals and would seem to have accepted a ten-year UK residence period as reasonable without undergoing any formal consultation process. Given the direction in which these matters are evolving, long-term residents will need to consider their IHT exposure under the new regime sooner rather than later.

The proposed review into certain offshore anti-avoidance legislation is a new proposal. The rules are complex and realistically some form of modernisation is well overdue. We will have to see how this  progresses.

How can Rayner Essex help?

While the basis of the new non domicile rules proposed by the previous Conservative Government in March remains intact namely the new four year FIG regime, there are a number of changes in this new policy paper that may affect non-domiciled individuals in terms of their current tax status and future planning.

Get in touch

If you want to discuss how these proposed changes might affect you, please contact Mark Moore, Tax Partner or get in touch with our tax experts today.