Significant changes to the non-dom regime announced in the Spring Budget

Following recent media speculation, we expected changes to the tax treatment of non-domiciles.

The chancellor’s announcements in the 2024 Spring Budget, along with the Treasury’s supporting documents, went much further than we could have anticipated. These changes have not been cobbled together at the last minute but appear to have been carefully considered. 

Domicile as a tax concept will gradually be removed from the UK’s tax regime. Where domicile is a deciding factor in determining tax exposure, it will be replaced by residency criteria. There is to be no change to the Statutory Residence Test (SRT) so we do have certainty on how residence will be determined. 

The biggest losers will be:

• those who are currently paying the remittance basis charge and who expected to continue paying it for 2025/26 onwards; or 
• anyone with a settlor interested trust.

Lastly, the Inheritance Tax (IHT) regime will pivot to a regime based on residence rather than domicile. 

What should you do?

You will need to consider the impact of the changes. The changes will not be implemented until 6 April 2025 so there is no need to panic but there is a need to start planning.

It is not all bad news. Whilst the abolition of the remittance basis may be unwelcome, the likelihood is that a new Labour government would have made changes anyway, and they may not have been as generous with the transitional reliefs.

The main points that you should be thinking about are set out below.

Those currently paying the remittance basis charge (RBC) or previously taxed on the remittance basis

If you have been UK resident for at least four years, the tax year 2024/25 will be the last year that you can pay the RBC and claim the remittance basis. There will be some transitional provisions including a generous way to bring previously untaxed funds into the UK. 

Settlor interested trusts

A significant change will apply to the way settlor interested trusts are taxed. From 6 April 2025, all income and gains will be treated as belonging to the settlor and will be taxed accordingly. 

Some settlors should consider taking assets out of trusts, while they can still claim the RBC, but others might want to put more in because of the IHT advantages discussed below. If you are going to take assets out of trust you need to think about alternative ways to hold them. 

Excluded property trusts

The Treasury’s detailed budget papers indicate that trusts established by non-doms with non-UK assets, and which are in existence on 5 April 2025, will continue to be exempt from IHT after the rules change.  

Those coming to the UK

Favourable rules will apply to those coming to the UK who have not lived here for the previous 10 years. These will only last for the first four years of residence but are more generous during that period than the current system. 

From year five of residence, you will pay tax on your worldwide income and gains the same as any other UK taxpayer.

Other options

Non-doms will need to consider whether they should take advantage of the opportunity to remit untaxed foreign income and gains at a fixed 12% tax rate from 6 April 2025 for 24 months. 

Examples of alternative future investment strategies might include:

• personal or family investment companies which do not pay tax on dividends and pay tax at 25% on other income or gain; and
• offshore investment bonds.

The statutory non-residence rules are not changing and, for some taxpayers, the option of limiting UK days to be non-UK tax resident will be appealing. 

How can we help?

The next few months are going to be challenging for anyone affected by the new rules. Our team includes non-dom specialists who can guide you through the changes and the options to work out what is best for you. 

If you would like help please get in touch with your usual RSM contact, Rachel de Souza or Andrew Robins.