Given that the Chancellor has previously defended the rules around non-UK domiciled individuals (or ‘non-doms’) by raising concern over the mobility of such individuals and claiming that he “would rather wealthy foreigners spent their money in Britain”, the announcement today was somewhat out of character… although some may claim it as a pre-Election gimmick, preventing the opposition (who have spoken about this for a good while) from using this in their Election campaign.

In simplistic terms, the current non-dom rules allow for UK tax resident individuals who are not domiciled (or deemed domiciled) in the UK to only be taxed on their overseas income and gains to the extent that they are remitted to the UK. I say simplistic terms, but the rules which sit alongside this principle are hugely complicated to apply in practice.

In short, these rules will be abolished with effect from 6 April 2025 and replaced by a new ‘residence-based’ regime.

Dom gone

The new regime will lose all connection with an individual’s domicile – instead, it will be based entirely on an individual’s residence status.

Individuals arriving in the UK who have not been UK tax resident for 10 consecutive years will benefit from the new regime for a maximum of four years – in that period, they will be able to remit any overseas income and gains to the UK without any additional tax charge.

Individuals who have been resident in the UK for tax purposes for four years will simply be taxed as any other UK resident – on their worldwide income and gains as they arise.

For those individuals who are UK tax resident at the time of this change but have not been UK tax resident for four years, the new relief will apply up to the end of their fourth year of UK tax residence – assuming that they meet all of the other conditions to benefit from the scheme, including the ‘10 consecutive years’ requirement.

A difficult transition

Moving from one complex regime to another is never going to be easy, so the new provisions will include transitional rules for those current non-doms who will not fall into the new regime – these include:

• A 50% reduction in the overseas income which will be subject to tax in the UK for the tax year 2025/26;
• The ability to rebase capital assets to 5 April 2019, restricting the amount of gain which will come into charge in the UK on the disposal of overseas assets where these are disposed of after 5 April 2025;
• A temporary 12% rate of tax applied to foreign income arising before 6 April 2025 and remitted between 6 April 2025 and 5 April 2027; and
• Relief for certain income in offshore trusts arising before 6 April 2025, to the extent that it is not distributed to UK residents who have been in the UK for more than four years.

Is this really the death of domicile?

Well possibly. In what seemed to be no more than an afterthought to these proposals, a consultation has been announced to consider bringing inheritance tax onto a residence, rather than a domicile, basis – essentially, bringing an individual’s worldwide assets into the UK inheritance tax net where they have been tax resident in the UK for 10 years, and for this to continue for 10 years after they lose their UK tax residence status. Clearly, we will have to wait for more detail on this to understand the full implications.

If you would like to discuss this in further detail, please get in touch with your usual contact or e-mail us at experts@tacs.co.uk.