During the recent Autumn Budget, Chancellor Rachel Reeves made a significant announcement: the non-domicile (non-dom) regime, a long-standing tax arrangement, will be abolished. This change is expected to raise £12.7 billion (around $16.47 billion) over the next five years and aims to create a more equitable tax system. Reeves plans to introduce a new, residence-based regime, featuring what she describes as “internationally competitive arrangements” designed for individuals relocating to the UK on a temporary basis. Let’s explore the details of this transition and what it means for non-domiciled individuals, particularly those considering a move to the UK.
The End of the Non-Dom Regime and the introduction of the FIG Regime
The non-dom regime, which allowed certain individuals to pay UK tax only on their UK-sourced income while using the remittance basis for foreign income and gains, will be replaced with a new framework known as the Foreign Income and Gains (FIG) regime from 6 April 2025. This new system marks a shift towards a residence-based approach to taxation, in line with the Chancellor’s goal to ensure that those who make the UK their home contribute their fair share to its tax base.
As part of the FIG regime, individuals who have not been resident in the UK for 10 consecutive tax years prior to their arrival will benefit from a four-year grace period. During this time, they will not be taxed on any foreign income and gains, provided they meet the criteria of the new 4-Year FIG rule. This rule offers an opportunity for those relocating to the UK to enjoy a more favourable tax arrangement, but it also necessitates careful planning to ensure compliance.
Example: Pedro, a Portuguese national who has lived in the UK for eight years without claiming domicile status was only taxed on UK-sourced income under the non-dom regime. With the new FIG regime, they will now need to consider their worldwide income, making strategic tax planning more critical as they adjust to UK tax on global income.
What is the 4-Year FIG Regime?
From 6 April 2025, the UK’s tax system will become more residence-focused, with a four-year grace period available to individuals who have not been UK tax residents for the previous 10 years. This period allows new residents to avoid UK tax on their foreign income and gains, being taxed only on their UK-sourced income during the first four years of their UK residency. This change is set to apply to both UK-domiciled and non-domiciled individuals who meet the residency criteria, offering a temporary respite from global taxation upon arrival.
The 4-Year FIG regime requires individuals to claim the benefit each tax year. It provides flexibility, allowing them to decide year by year whether to opt in based on their circumstances. For example, someone who arrived in the UK in the 2023/2024 tax year, having been a non-UK resident for the previous decade, can claim the FIG benefits for two years: 2025/2026 and 2026/2027. However, the regime's benefits end after four years of residency, making it crucial to plan ahead for the transition to being taxed on an arising basis.
Example: If Marianna, an Italian citizen, moves to the UK in 2023/2024 after being non-resident for over 10 years, she can apply the 4-Year FIG rule starting in 2025/2026 and continue for the next two tax years (2025/2026 and 2026/2027). However, after four years of residency, the FIG regime ends, and she would then be taxed on an arising basis for all global income and gains, requiring a strategic shift in her tax planning.
Understanding the Temporary Repatriation Facility (TRF)
One of the more nuanced aspects of the new tax framework is the Temporary Repatriation Facility (TRF). This facility is specifically designed for those who were non-domiciled and using the remittance basis before 6 April 2025. It offers a limited opportunity to bring foreign income and gains generated before this date into the UK at a reduced tax rate.
The TRF will be available for three tax years, offering a 12% tax rate on designated foreign income and gains remitted between 6 April 2025 and 5 April 2027. For remittances made between 6 April 2027 and 5 April 2028, the rate will rise to 15%. After the remittance is made and the designated tax paid, no further UK tax will be due on these funds. This presents a valuable window for former non-doms to repatriate funds while benefiting from lower tax rates, but it requires a strategic approach to maximise the potential tax savings.
Example: Angelo, a long-term non-dom resident in the UK, has accumulated foreign investment income he has not yet brought into the UK. With the TRF, he has the option to bring these funds into the UK between 2025 and 2028 at a preferential tax rate (12% initially, then 15%), significantly lower than the standard rates. This allows him to benefit from repatriating funds at a reduced cost.
Impact on Long-Term Non-Doms: What Changes After 6 April 2025?
For those who previously benefited from the remittance basis, the changes mean a shift to the arising basis from 6 April 2025, meaning they will be subject to UK tax on their worldwide income and gains unless they qualify for the FIG regime. This adjustment necessitates a thorough review of existing structures and income sources to ensure compliance with the new rules.
Additionally, the end of the non-dom regime introduces transitional reliefs, such as a rebasing opportunity for capital gains. Non-domiciled individuals who have made a remittance basis claim between 2017/18 and 2024/25, hold assets as of 5 April 2017, and dispose of them after 6 April 2025, can rebase the asset’s value to 5 April 2017. This uplift can significantly reduce the taxable gain on future disposals, providing relief from CGT on gains accrued before the cut-off date.
Example: Justyna, a long-term non-dom resident, owns shares abroad purchased in 2010 that have appreciated significantly. By taking advantage of the rebasing, Justyna can revalue her shares to their worth on 5 April 2017, potentially reducing her CGT liability when she eventually sells these shares.
Business Investment Relief (BIR) and Overseas Workday Relief (OWR) Adjustments
The changes also impact other tax reliefs like Business Investment Relief (BIR) and Overseas Workday Relief (OWR). While BIR remains available for investments made before 6 April 2028, it will no longer apply to new investments beyond that date. Those who have relied on BIR to bring funds into the UK should review their investment plans and consider the implications of the forthcoming changes.
OWR, previously available to non-doms for the first three years of UK residency, will align with the new FIG rule, extending the relief to four years from 6 April 2025. This means that income earned overseas during the first four years of UK residency will not be taxable if it is not remitted to the UK, providing a broader scope for tax planning during the transition period.
Example: Clifford, a non-dom tax advisor, performs duties overseas and had previously utilised OWR to avoid UK tax on foreign income. Under the new rules, he can extend this benefit to four years, further reducing his UK tax liabilities.
Residency-Based Inheritance Tax (IHT) Rules
Another key area of change is the shift towards a residency-based Inheritance Tax (IHT) system, set to take effect from 6 April 2025. The new rules focus on taxing UK-situated assets for both UK residents and non-residents, with non-UK assets subject to IHT if the individual has been resident in the UK for 10 out of the last 20 years. Those who become non-UK resident after 10 years of UK residence will need to remain outside the UK for a set period to fully exit the UK IHT net, with the time required varying from three to ten years depending on the length of prior UK residency.
Example: Laura, an Italian national, lived in the UK for 15 years and recently moved back to Italy. She must remain outside the UK for five years to fully exempt her non-UK assets from UK IHT liability.
Next Steps for Affected Individuals
With the abolition of the non-dom regime and the introduction of the FIG regime, it is crucial for individuals to assess how these changes may impact their tax status and future plans. Those who have recently relocated to the UK or are planning to do so must seek professional advice to determine eligibility for the FIG regime and understand the potential benefits of the TRF.
As the transition approaches, proactive planning is essential. This includes reviewing remittance strategies, evaluating the impact of the new rules on foreign income and gains, and considering the optimal timing for bringing funds into the UK. Navigating these changes requires a deep understanding of the new legislation and the opportunities it presents.
Expert Guidance from LEXeFISCAL
Navigating the complexities of the FIG regime requires expert support to ensure that individuals and businesses remain compliant while maximising the available reliefs. We specialise in helping clients understand the intricacies of the UK tax system, particularly during periods of significant change like this. For tailored advice on how these new rules may impact your situation, or for assistance with transitioning from the non-dom regime to the FIG framework, you can contact angelo@lexefiscal.com.
Comments