Major changes to the existing non-domicile (non-dom) rules!
As of the start of the new tax year (6 April 2025), there are major changes to the existing non-domicile (non-dom) rules, which could have a significant impact on non-UK nationals who have lived in the UK for a number of years, as well as UK residents wishing to move abroad permanently. These changes are designed to phase out the long-standing non-dom tax advantages that have allowed individuals to exclude foreign income, gains, and assets from the scope of UK tax.
What Are the Current Non-Domicile Rules?
Non-doms are people who live in the UK but have a permanent home (domicile) in another country. For years, this meant that individuals could pay less/no tax in the UK on foreign income and capital gains, unless they brought those funds (remitted) to the UK. It also exempted overseas assets held from UK inheritance tax (IHT). This system attracted wealthy individuals from abroad to settle in the UK.
For UK citizens, it has often been difficult to obtain “non-dom” status as HMRC will usually take the view that, no matter how long an individual has remained abroad, their true “home” is still in the Uk and therefore remain UK domiciled.
Upcoming Changes to the Non-Domicile Rules
The new rules will look to tax individuals based on their residence status, rather than their domicile. Starting in April 2025, non-doms will no longer be able to claim the remittance basis indefinitely. After a certain period, non-dom individuals will be taxed on their worldwide income and gains, just like other UK tax residents.
One of the most significant changes is that individuals who have lived in the UK for a significant amount of time will no longer get advantageous tax treatment for offshore income and assets. HMRC will tax individuals based on how long a person has been a UK resident, rather than on their domicile status.
The Four-Year Foreign Income and Gains Regime
The new system introduces a ‘Foreign Income and Gains’ (FIG) regime for people returning to the UK after living abroad. If someone has been a non-UK tax resident for at least 10 years, they can use this regime for up to four years upon their return. During this period, they will not pay tax on foreign income or gains unless they bring those assets into the UK. After those four years, their worldwide income and gains will be taxed like that of any other UK resident.
The Temporary Repatriation Facility (TRF)
Another new concept and opportunity for non-doms is the TRF. This allows individuals to bring foreign income and assets into the UK at a reduced tax rate. For income or gains that have not been brought into the UK by April 2025, individuals can move funds to the UK at a tax rate of 12% during the 2025/2026 & 2026/27 UK tax years, rising to 15% in 2027/2028. This offers a window for non-domicile to bring foreign income and gains back into the UK with a reduced tax rate, but it is only available for assets held before the new rules take effect.
Changes to Inheritance Tax Rules
In addition to changes in income and capital gains tax, HMRC are also changing the inheritance tax (IHT) rules. As of 6 April 2025, UK residents will be liable for IHT on global assets if they have been a UK resident for 10 out of the last 20 years. This is a significant change, as it means that long-term UK residents will be taxed on their worldwide assets when they pass away, including those held abroad.
If someone leaves the UK after being a resident for a long period of time, HMRC can still tax their estate for a number of years. The length of time UK inheritance tax applies after someone leaves depends on how long they have lived in the UK. In short, individuals who have been UK residents for 10 years or more will have ongoing tax obligations for years, even after they leave.
Conclusion
Assets situated in the UK will always be subject to IHT, regardless of an individual’s residence status. However, these changes mark a significant shift in how the UK taxes foreign income, gains, and assets. Non-Domicile will no longer have the same tax advantages, and their worldwide income and wealth will become subject to UK tax once they meet certain residence bases criteria. While these changes may be challenging for those who have relied on the non-dom system previously, there are still opportunities to minimise UK tax exposure with the correct planning in place, particularly with the TRF and the FIG regime.
One positive planning point is that for those individuals intending to retire or move abroad permanently, there is now a clear understanding, set out in legislation, that after a maximum of ten years’ residence abroad as UK individual can be regarded as non-UK domiciled.
Next Steps
With the major changes to the existing non-domicile (non-dom) rules it is important to gather the correct tax advice to avoid costly mistake. Please contact ETC Tax for further guidance.
In an increasingly global workforce, many businesses find themselves with employees moving across borders, whether UK-based employees working overseas or international employees coming to the UK. However, both individuals and employers need to be aware of the various tax compliance requirements associated with these moves.
Key Considerations for Individuals Working Abroad or Moving to the UK
For employees, relocating to another country for work can be complex from a tax perspective. Many individuals look to their employers for guidance on managing their tax obligations. Here are some essential aspects to consider:
UK Tax Residence Status
HMRC’s Statutory Residence Test (SRT) determines an individual’s UK tax obligations. Understanding residence status is crucial for ensuring tax compliance. Generally speaking, as a non-UK tax resident you will be taxable on your UK-sourced income and UK workdays. As a UK tax resident, you will be taxable on your worldwide income and gains. Therefore, is it essential to understand your UK tax residence status to ensure your income is correctly reported to HMRC and taxed accordingly.
Split Year & Double Tax Treaty Rules
If an individual arrives in or leaves the UK midway through the tax year, these rules help establish how their income will be taxed in different jurisdictions. Split Year rules can mean that the UK tax year is split into a period of residence and non-residence and Double Tax Treaties can be used to determine which country will get primary taxing rights where there are multiple jurisdictions involved.
Other Tax Considerations
In addition to income tax, employees may also need to navigate Capital Gains Tax (CGT) and Social Security implications, which vary depending on the country of relocation.
Employer Obligations for Overseas Employees
For employers, having employees move across borders comes with tax responsibilities. Businesses need to ensure compliance with UK and international tax laws, with a particular focus on the following:
PAYE Compliance
UK Pay As You Earn (PAYE) tax obligations apply from an employee’s first working day in the UK. Failing to meet PAYE requirements can lead to compliance issues and potential penalties.
Employers must assess tax obligations not just in the UK but also in other relevant jurisdictions where their employees work. This includes managing employer social security contributions and ensuring proper tax filings in all applicable countries.
How ETC Tax Can Help
Managing tax compliance for globally mobile employees can be challenging, but ETC Tax provides expert guidance and tailored support to help businesses navigate these complexities. We can ensure both you and your employees meet tax obligations, giving employees confidence and employers peace of mind. Addressing tax matters early helps avoid HMRC scrutiny and costly corrections. Our team provides strategic advice to mitigate risks.
Whether you need an initial consultation or ongoing UK tax compliance support, we offer customised solutions to fit your business needs, including assistance with self-assessment tax returns.
Next Steps
If you need expert guidance on tax compliance for globally mobile employees, or any of our other tax advisory services, contact us today at amie.swales@etctax.co.uk. Head over to our website for more information too on international issues.
Globally Mobile Employees, do your clients have employees who work overseas and/or are coming to work in the UK from overseas?
If so, are your clients aware of the tax compliance requirements for the individual and their employer?
If you are an individual…
Going to work abroad can be a confusing time from a tax point of view. Many employees look to their employers for guidance and support. Here are some of the things they will need to think about…
UK Tax Residence Status – HMRC’s Statutory Residence Test (SRT) will need to be applied to determine their UK tax obligations.
Other Taxes – There may also be Capital Gains Tax (CGT) and Social Security implications.
If you are an employer…
The employer also needs to consider their position particularly where they have employees joining them from overseas, including:
PAYE Compliance – PAYE applies from day one for UK workdays. Misunderstanding this can lead to compliance failures.
Cross-Jurisdictional Considerations – employers need to ensure tax requirements are met in all relevant jurisdictions.
How can ETC Tax help with internationally mobile employees?
Expert Support
We can ensure your clients’ tax affairs are properly managed.
Clients will have the confidence and peace of mind of professional support, whilst being reassured that they have done everything they need to from a compliance point of view.
Proactive Risk Management
Acting early will ensure clients avoid HMRC issues and costly corrections. We help mitigate risk by providing timely advice and support.
Tailored Services
We offer customised support to fit your clients’ business needs, from initial consultations to ongoing UK tax compliance assistance.
About us
ETC Tax is a specialist tax advisory firm with Big 4 accountancy firm experience.
We have specialists in global mobility issues such as this. We focus on providing tax support to SMEs, and OMBs, making us uniquely qualified to meet your specific needs.
Other services include :-
Advice on succession planning and exit
R&D
Advice on share schemes and employee incentivisation
Reorganisations
International tax issues
Next Steps
If you’d like to learn more about how we can help you assist your clients with their small business needs regarding globally mobile employees, or any of our other service offerings, we’d be happy to help. Please contact amie.swales@etctax.co.uk, quoting ETCUK25 for a 10% discount against any work we do for you.
Prior to 1 April 2013 it was fairly common for individuals who were both non-UK resident and non-UK domiciled to purchase high value UK residential property through an offshore company, with the shares in that company being owned by an offshore trust.
Because the shares were not situated in the UK, there were no UK IHT implications (as there would have been if the property had been purchased directly by the individual).
Over the years the benefits of this type of structure has gradually been eroded:
From 1 April 2013, HMRC introduced an Annual Tax on Enveloped Dwellings (ATED) which is a fixed scale charge based on the value of the property. Properties are revalued every five years for these purposes so the next revaluation date is 1 April 2023. If the property is commercially let, an ATED exemption is available, but an ATED return still needs to be filed.
From 6 April 2015, HMRC introduced capital gains tax for non-residents disposing of UK residential property, which was extended to all UK land and property from 6 April 2019.
From 6 April 2017, HMRC brought UK residential property into the Inheritance Tax net. The rules here are far-reaching and in the structure outlined above, the offshore trust becomes liable to IHT.
In view of the above changes, there is a marked trend to ‘de-enveloping’ UK residential and commercial property from the structure by moving it to a new UK company and here the tax implications have to be carefully considered and planning taken to avoid unnecessary tax charges. We have considerable experience in this area.
From an IHT perspective, offshore trusts will have an IHT charge on each ten year anniversary after 6 April 2017. So if, for example a trust was established on 1 July 2009, the first Ten Year Charge would arise on 1 July 2019 (although the tax payable would only be calculated from 6 April 2017). Where the trust was set up many years ago, the IHT reporting is sometimes overlooked which can lead HMRC charging interest and penalties on the tax due.
HMRC also believes many overseas companies have not declared rental profits and has issued ‘nudge letters’ urging such companies to regularise their UK tax position.
The Shifting Tax Landscape in the UK: High Earners and the Move Abroad
Introduction
In recent years, the UK has seen a significant shift in its tax landscape. There are now 2.8 million more higher rate taxpayers compared to 2010. This change has concentrated the tax burden on a smaller population segment, with over 60% of the income tax being paid by the top 10% of earners. As a result, many high earners are exploring options to mitigate their tax liabilities, including the possibility of relocating abroad.
The Appeal of Moving Abroad: Popular destinations of choice
Faced with increasing tax pressures and high tax rates, numerous UK residents are considering moving to countries with more favourable tax regimes. Thailand and Portugal have emerged as popular destinations for those seeking a better quality of life and potential tax advantages.
Thailand offers a low cost of living, beautiful landscapes, and a relatively lenient tax system. The country’s non-resident status and foreign income exemption rules make it an attractive option for retirees and remote workers.
Portugal, through its Non-Habitual Resident (NHR) regime, provides significant tax incentives for new residents. Its favourable climate, safety, and high standard of living further enhance its appeal.
However, moving abroad comes with complex tax implications that need careful consideration. One crucial aspect is assessing residence status, as individuals may face split-year treatment. This would mean that the tax year is split into a period of residence and non-resident, hugely impacting how an individual’s income is taxed.
ETC Tax can assist clients in navigating these challenges by:
Determining UK Tax Residence Status:
We can assist with reviewing HMRC’s Statutory Residence Test to establish whether you are considered a UK resident or non-resident for tax purposes. This can help you be confident that you are paying the correct amount of tax for the year where there are complex residence considerations.
Split-Year Treatment:
Advising on the rules and implications of split-year treatment, ensuring that your income is correctly taxed during the tax year in question.
Tax Planning:
Providing tailored advice on how to structure your affairs to take full advantage of tax benefits in your new country of residence.
Compliance and Reporting:
Ensuring that all tax obligations are met in the UK and assisting with these. We’re happy to help with all or just part of the process. We are flexible in terms of our level of support.
Next Steps
Relocating abroad can offer significant tax benefits, but it requires expert guidance to navigate the complexities of international tax law. ETC Tax is here to help you every step of the way, ensuring a smooth transition and optimal tax outcomes. Please do get in touch with us at enquiries@etctax.co.uk should you want to find out more.
Whether your company is resident in the UK or not may seem like a very easy question to answer – and for most it absolutely is.
Any company incorporated in the UK is, by default UK tax resident and would be expected to pay corporation tax on its worldwide income.
Many other countries in the world determine a company’s tax residence by reference to their place of incorporation. With that in mind, is this going to be the shortest tax article ever?
Is it that simple!
If only it were that simple. In many countries (including the UK) a company can also be considered tax resident if it is “centrally managed and controlled” in that country. Central management and control refers to the key strategic decisions relating to a company. The sort of decisions that are typically taken by the director(s). For the large majority of UK companies there is no question they are centrally managed and controlled in the UK. Again it is all pretty simple.
All that said, in the last few years and certainly since the pandemic the trend for people to move overseas while retaining their role with a UK company has continued to develop. Especially for services business the physical location of the individual has become much less important to the effective performance of their duties given the explosion in the use of platforms like Teams and Zoom.
Where the person moving has a controlling interest and is the guiding mind behind the business then such a move can have some unintended and rather unpleasant consequences for the company’s tax residence.
All very interesting, but what does it matter?
Let’s take the example of an IT development business whose sole owner and director has strangely got fed up with the lousy British weather and decided that it’s time to find a place in the sun.
They pack up their home and move permanently to somewhere where the sun shines more than 10 days a year – let’s say Spain for the sake of argument (they have a granny from Dublin so have been able to get an Irish passport). As is increasingly the way of it their developers are scattered all over the globe and the physical footprint of the company in the UK is really quite limited.
They quite happily run the company from Spain. From time to time their accountant tells them they need to have a board meeting to vote dividends so they dutifully do so, minuting that the meetings take place in San Sebastian… In time they decide to acquire a Spanish company.
As their cash is tied up in the UK company they decide to acquire the Spanish company as a subsidiary of the UK company. The lawyers diligently prepare the relevant board minutes to give effect to the acquisition, again showing the location of the meetings as being in Spain.
All trundles along for some time. Our director is very careful to limit their time in the UK to make sure they are treated as UK non-resident and they file Spanish personal tax returns on that basis. They even make sure they register and operate a Spanish payroll to deal with employment tax and social security obligations.
Tax resident… make up your mind???
One day a letter arrives from Spanish tax authority saying that they think that they believe that the UK company is in fact tax resident in Spain. Our director is confused by this as it is a UK company so how can it be resident in Spain? The Spanish authorities reply that they believe that the company’s “effective head office” is in Spain and ask where the key strategic decisions of the company are taken. Digging out his board minutes our director has to reply “in Spain…” There you are then say our Spanish friends, we have you bang to rights (or its Spanish equivalent).
But hang on says our director, HMRC in the UK says that my company is also resident in the UK – how can a company be resident in two places?
You can be in two places at once…
The fact is that it is perfectly possible for the tax authorities in two different countries both to think that a company is tax resident in their jurisdiction. This has the potential to produce a world of complexity. Most often where there is a double taxation agreement between the two countries this will provide a “tie-breaker” test to decide which of the two countries can claim tax residence.
The usual test here (including in the UK-Spain agreement) is that residence is awarded to the country where the “effective management” of the company is undertaken. Effective management is a lower level of management to Central Management and Control – more at the operational level than the strategic. There are lots of factors that can be considered in arriving at this and the answer is not always entirely clear-cut.
Confused?
In the case of our (by now rather confused) Spanish resident director, they not only set the strategic direction of the company but also run it on a day-to-day basis, while their spouse is responsible for maintaining the books and records and liaising with the accountants in the UK. It seems pretty clear that effective management is also undertaken in Spain so under the tax treaty the company is now considered to be a Spanish resident… The flip side of this is that the company has migrated its tax residence out of the UK.
So the company just pays tax in Spain now surely?
Sadly it is not as simple as just switching where the company pays tax. From a UK tax point of view the company is no longer within the UK tax net so HMRC are not going to get their pound of flesh in terms of tax in the future. As a result, there are rules in place for a situation where a company leaves the UK tax net. In short, the company is considered for UK tax purposes to have sold its assets for their market value at that date it stops being a UK resident.
There are exceptions where the company continues to carry on a business in the UK through a “permanent establishment” – this can be a get out of jail free card for some of the assets. However in our case the company by now has little or no business in the UK so this exit charge could prove to be a very expensive hit – especially as there is no cash realised to pay the tax.
Our director is by now feeling more than a little glum. Their mood is not lightened by learning that, because the company did not give notice to HMRC of its intention to migrate out of the UK tax net, they might personally be liable for substantial penalties and potentially liable for any unpaid tax the company might have in the UK…
And the moral of the story…
Our director’s desire to move to warmer climate has possibly led to a whole world of pain not only for their company but also for them personally… In an increasingly globally mobile world this is just one of the tax issues that moving overseas can create, but as may be seen it is possibly one of the more expensive.
Next steps
Cross-border tax is rarely a simple deal and understanding the risks and taking steps to manage them is essential to avoid some very costly mistakes… To avoid these mistake please get in touch.
