Labour plans to tighten tax rules for non-UK domiciled individuals
Tax rules for non-UK domiciled individuals
Introduction
Starting next year, non-domiciled individuals (non-doms) in the UK will face a tougher tax regime as Labour aims to eliminate what they see as an outdated tax benefit and reform inheritance tax (IHT) liabilities.
Labour’s Plans…
Labour plans to enhance the Conservative proposals from the March Budget by implementing stricter transition rules and introducing a new residence-based system for IHT, effective from 6 April 2025. The full details of the rebasing dates will be disclosed in the autumn Budget.
The New System
The new system will shift from a domicile-based IHT approach to one based on residence, targeting those who have been UK residents for the past 10 years. This change will affect the scope of property subject to UK IHT for both individuals and trusts, and will only apply to deaths occurring after the new rules take effect, avoiding retrospective application.
Four-year foreign income and gains (FIG) regime
The Labour government will not continue the transitional measures announced by former Conservative Chancellor Jeremy Hunt, such as the 50% tax reduction on foreign income for individuals losing access to the remittance basis in the first year. Instead, they will implement a four-year foreign income and gains (FIG) regime, offering 100% relief on FIG for new UK arrivals in their first four years of tax residence, provided they have not been UK tax residents in any of the previous ten years.
UK residents ineligible for the four-year FIG regime will be subject to capital gains tax (CGT) on foreign gains as usual. Remittance basis users can rebase foreign capital assets to their value on a specified date for CGT purposes when they dispose of them. This rebasing date will be confirmed in the upcoming Budget.
April 2025
As of April next year, income and gains within settlor-interested trust structures will lose tax protection. A new temporary repatriation facility (TRF) will be introduced, allowing individuals who have previously used the remittance basis to remit FIG accrued before 6 April 2025 at a reduced tax rate for a limited time. The specifics of this will be detailed in the Autumn Budget.
Furthermore, there will be a review of offshore anti-avoidance legislation, including the transfer of assets abroad and settlement rules, to clarify and simplify the current laws. Any changes resulting from this review are not expected before April 2026.
The Overseas Workday Relief (OWR) scheme will continue, with more details to be announced in the Autumn Budget.
Next Steps
If you have any questions on how your tax liabilities will be affected by the new labour government then please get in touch. Our team of experience tax advisers will be able to guide through proposed changes.
