With UK Prime Minister Rishi Sunak announcing that the UK will go to the polls on 4 July, this has thrown a timetable for legislation around the UK's resident non-domicile system into the air. Regardless, both the Conservative and Labour parties have promised to end the system, and replace it. This article considers what we know.

Earlier this spring, the UK government said it intended to scrap the resident non-domicile (non-dom) system and replace it with a temporary residency regime. This, as widely seen at the time, was partly to steal thunder from the opposition Labour Party, which has pledged to scrap the non-dom system. A point in question is whether the new regime is attractive enough for high net worth individuals and families to want to make a home in the UK, and bring in much-needed capital and income. Another uncertainty relates to inheritance tax, and how those non-doms who are now facing IHT bills will be able to mitigate the tax, if at all. And yesterday, the UK prime minister, Rishi Sunak, announced the UK will hold a general election on 4 July. 

As if to muddy the waters further, this news service has seen media chatter suggesting that the UK Chancellor of the Exchequer, Jeremy Hunt, might try to emulate an Italian-style residency system that stretches out longer in time than the currently proposed one, with its four-year exemption period. 

With the Labour Party ahead in the opinion polls, much focus is on what it will do in office. Shadow Chancellor Rachel Reeves has pledged to foil attempts to avoid IHT bills among former non-doms. A number of non-doms, expecting change, have already left the UK. The likely revenue “hit” from their departure, and the impact of scrapping the scheme, might mean that the Treasury does not end up with more money at the end of it. Predictions, as they say, are hard to make.

With all of this to consider, we carry this exclusive guest article from Mauro De Santis Bo, partner at GSB Wealth. The editors are pleased to share these insights. The usual editorial disclaimers apply. To respond, email tom.burroughes@wealthbriefing.com.

The planned changes to the UK's resident non-domiciled tax regime will impact different non-doms in various ways, even those planning to leave the country. 

With new rules potentially coming into effect on 6 April 2025, the best approach for anyone affected is to start planning and consider possible scenarios now.

The biggest changes
The proposed removal of non-doms being able to pay tax on a remittance basis is the headline change. Paying UK tax on UK income and gains, and any foreign income and gains brought into or used in the UK will be replaced with a Foreign Income and Gains (FIG) regime from 6 April 2025 if the Conservative government’s plan is implemented. New arrivals will have a four-year exemption from paying UK tax on foreign income and gains. However, this applies only if they have not been UK residents for the previous 10 tax years.

Many non-doms who have been using the remittance basis will not qualify for the FIG regime and will need to pay UK tax on a worldwide basis from 6 April 2025. The Conservatives have proposed three transitional provisions that some people may use:

1. Anyone moving from paying tax on a remittance basis in 2024/25 to paying on a worldwide basis in 2025/26 would be subject to UK tax on only half of their foreign income in 2025/26. However, Labour says it would scrap this provision.

2. These individuals will also be eligible for a “rebasing” of personally held foreign assets to their value on 5 April 2019 for capital gains tax purposes. This will apply to disposals on or after 6 April 2025, and the asset must have been held on 5 April 2019.

3. A potential Temporary Repatriation Facility (TRF) available from 6 April 2025 to 5 April 2027 would allow foreign income and gains previously sheltered by the remittance basis to be brought into the UK at a rate of 12 per cent. This is attractive because current tax rates on remittances are up to 45 per cent on income and 20 to 28 per cent on capital gains. Labour has suggested it may extend this measure beyond 2027. Anyone considering large remittances should consider their timing.

Will there be changes to inheritance tax and trusts for UK res-non-doms?
Inheritance tax (IHT) rules will also be overhauled under the Conservative proposals. Today’s domicile-based system would be replaced with a residence-based regime; after 10 years of UK residence, an individual’s worldwide assets would fall within the scope of IHT, compared with 15 years now.

Anyone then leaving the UK and becoming non-resident after 10 or more years of residence would face a 10-year “tail” during which their worldwide assets would remain within the scope of IHT, up from a three-year tail now. The government plans to publish a consultation on this, with the 10-year tail likely to be a focus.

Fundamental changes are proposed for offshore trusts set up by non-doms. Under current rules, foreign assets held in a trust settled by a non-dom during the first 15 years of UK residence remain exempt from IHT, even if the settlor remains UK resident and becomes “deemed domiciled” or UK domiciled.

Which rules might apply to clients?
The proposed non-dom rule changes will affect different people in various ways. It's important to speak to an expert to understand which proposals may impact clients and how. The upcoming UK election could also mean changes to the plans, particularly relating to the TRF and inheritance tax. Currently:

•    Non-doms who have been in the UK for over four years, on 6 April 2025, will be subject to UK tax on their worldwide income and gains. Those who have been in the country for less time may qualify for the four-year FIG regime, but any previous years of UK residence will be deducted.

•    Those who have been UK residents for more than 10 years will see their worldwide assets fall within the scope of IHT from 6 April 2025. Individuals with trusts in this category will likely also face changes.

•    The significant change for anyone UK resident and already deemed domiciled will relate to IHT. The current three-year tail they face if leaving the UK would increase to 10 years. Anybody who settled trusts before becoming deemed domiciled will also face changes. However, the TRF could allow them to bring in previously unremitted income and gains at a preferential 12 per cent rate.

•    Anyone deciding to become a UK resident after 6 April 2025, who has not been a resident in the previous 10 years, will qualify for the FIG regime and be exempt from UK tax on foreign income and gains for four years. This includes distributions from trusts.

Conclusion: plan ahead for non-dom tax changes
Given the significant changes on the horizon, it's crucial for non-doms to start planning now. Assess clients’ current situation, understand how the new rules might affect clients, and consult with their advisors to make informed decisions. The upcoming UK election could bring further changes, so staying informed and prepared is essential.