Autumn Budget 2024 Domicile Rules Replaced by Resident and Long Term Resident

In the Spring Budget of 2024, Non-UK Domicile was already being abolished by the Conservative Government, but those proposed rules have now been updated and amended by the new Labour Government to take effect on 6 April 2025.

See the Conservative’s original Spring Budget Changes on Domicile:  Non Domicile Abolished

Why is Domicile Status Important?

Currently, there are non-UK domiciled rules on taxation for people that may have been born overseas or to overseas parents and have moved to the UK to live and work but are not classified as ‘UK Domiciles’ i.e., planning to live permanently in the UK and remain for the rest of their lives in the UK.

• In the UK, if you are tax resident, you pay income tax, capital gains tax and inheritance tax on UK derived income and assets.
• If you are also UK Domicile, you pay income tax, capital gains tax and inheritance tax in the UK on your Worldwide income and assets.

Domicile of Origin

• You acquire your Domicile of Origin at birth from your father or, if your parents were not married at the time, from your mother.

Domicile of Choice

• Your domicile of origin can change if you leave your domicile of origin country and live permanently in another country and set this up as your permanent home (your Domicile of Choice). 

Claiming non-UK Domicile Status – Benefits of Non-Domicile Taxes

Under rules until 5 April 2025, your income and gains from outside the UK is not subject to UK taxes provided it is not brought into the UK (remitted).  There are set rules though on what is taxed and what is not under non-domicile rules:

• Foreign income and gains below £2,000 pa in the tax year was not taxable in UK.

If foreign income and gains exceeded £2,000 pa, there were two choices:

1. Declare in full for taxes in UK.
2. Remittance basis:  Pay tax on income and gains brought into the UK but pay no tax on income and gains not remitted into UK subject to the following annual tax charge:
1. Lived in UK for 7 of the last 9 years = pay £30,000 pa tax charge but all foreign income and gains remain not taxable in UK
2. Lived in UK for 12 of the last 14 years = pay £60,000 pa tax charge but all foreign income and gains remain not taxable in UK

Clearly, for some wealthier individuals, it may have been beneficial to declare as a ‘remittance basis user’ (RBU) and pay an annual tax charge of £30,000 or £60,000 rather than paying much higher levels of taxes of worldwide foreign income and gains.

Domicile and Non-UK Domicile status and tax rules end on 5 April 2025.

See Read:  Non Domicile  Watch: Non Dom Bens  and Res v Dom

The Non-UK Domicile Rules (Non-Dom) will be replaced from 6 April 2025 with new rules if you are ‘UK Resident’ or ‘Long Term Resident’.

6 April 2025 - UK Resident - New Residence Based Foreign Income and Gains (FIG) Regime

Remittance Basis will be replaced with a new 4-year Foreign Income and Gains (FIG) Regime for individuals who become UK tax resident after a period of 10 consecutive tax years as non-UK resident.  Qualifying individuals will not pay tax on FIG arising in the first 4 tax years after becoming UK tax resident and will be able to bring these funds to the UK free from any additional taxes.

• After the 4-year FIG period ends, you will pay full UK income and gains taxes on worldwide assets as UK Resident.

Transitionary Rules - The government is introducing transitional arrangements for existing ‘non-doms’ currently claiming treatment as an RBU see: 

• An option to rebase the value of personally held foreign capital assets to 5 April 2017 (a change from Conservative proposals 5 April 2019 , as we assume to get lower rebased values capital values meaning more UK capital gains tax payable when sold).
• Overseas Workday Relief (OWR):  if you move to UK but still work/earn for some periods overseas, where you do not pay UK income taxes on overseas income. 
• OWR is being kept but reformed with relief extended to a four-year period and the need to keep the income offshore removed (so you can bring the overseas income into the UK).
• The amount OWR claimed yearly will be limited to the lower of £300,000 or 30% of the your net employment income.
• The temporary 50% exemption for the taxation of foreign income for the first year of the new regime (2025-26) planned by the Conservative Government has been abolished by Labour (meaning more tax payable)
• A three-year Temporary Repatriation Facility TRF (previously set at two years by the Conservatives) to bring previously accrued foreign income and gains into the UK at a 12% rate of tax (increasing to 15% under Labour) meaning more money can be brought into the UK and taxed.
• The scope of TRF is also being expanded by Labour to include offshore structures and simplifying the mixed fund rules to encourage individuals to designate and bring into the (or repatriated i.e., treated, and taxed as if in UK) any accrued, as yet untaxed, foreign income and gains.  No doubt the attraction is more money coming into the UK with the incentive of being taxed at reduced rates of 12-15%.
• TRF will be available to
• Individuals who have been taxed on the remittance basis.
• Designated amounts will pay tax of 12% in tax years 2025 to 2026 and 2026 to 2027, with the rate rising to 15% in tax year 2027 to 2028.
• Any remitted ‘designated amounts’ will not otherwise be charged to UK tax.
• Individuals that designate investments under the TRF and have paid the TRF tax charge are not forced to bring funds into the UK, they can be repatriated (i.e., brought into UK) in future tax years.  No doubt designating now is being encouraged as you will only pay 12% and tax is then already deemed paid in full when you bring funds into UK.  Either way, tax will have been paid upfront (happy Labour) even if you do not bring the money into UK just yet.

Inheritance Tax

Previously, the Conservative government said it would consult on a residency-based regime for inheritance tax (IHT) and we speculated that this could mean by being non-UK resident, there will be no IHT on UK assets,  Sadly, this was not to be as Labour has replaced UK Domicile and Non-UK Domicile status from 6 April 2025 for IHT with:

‘Resident’ and ‘Long Term Resident’

Unused pensions funds (both in UK and overseas) will now be included in your estate for UK Inheritance Taxes if you are ‘Resident’ or deemed UK ‘Long Term Resident’: 

See Budget 24 Pensions & IHT

UK Resident:  If you are still UK resident and have lived in the UK for at least 10 out of the last 20 tax years, both your UK and worldwide assets (including pensions) will be included in your estate for UK Inheritance purposes.

Long Term Resident: If you have been UK resident for at least 10 out of 20 years and then you become non-resident and do not return to the UK before the chargeable event to tax (e.g., death) then you may fall into scope for both UK and non-UK assets being subject to UK inheritance Taxes as follows:

• If you have been resident in the UK for less than 10 years and you leave the UK only UK assets and pensions will be included in the estate for UK Inheritance taxes.
• If you have been UK resident between 10 and 13 years of the last 20 years, and then leave the UK both your UK and worldwide pensions and other assets will be included in your estate for UK Inheritance purposes for a further 3 tax years.
• If you have been UK resident for more than 13 years (of last 20yrs), each additional UK resident year will mean another year after you have been non-resident to be within scope of UK IHT for both your UK and worldwide pensions and other assets as follows:
• UK resident 14 years (of last 20yrs) means 4 further tax years as non-resident and still within scope of UK IHT rules on worldwide pensions and other assets as a ‘Long Term Resident’.
• UK resident 15 years (of last 20yrs) means 5 further tax years as non-resident and still within scope of UK IHT rules on worldwide pensions and other assets as a ‘Long Term Resident’.
• UK resident 16 years (of last 20yrs) means 6 further tax years as non-resident and still within scope of UK IHT rules on worldwide pensions and other assets as a ‘Long Term Resident’.
• UK resident 17 years (of last 20yrs) means 7 further tax years as non-resident and still within scope of UK IHT rules on worldwide pensions and other assets as a ‘Long Term Resident’.
• UK resident 18 years (of last 20yrs) means 8 further tax years as non-resident and still within scope of UK IHT rules on worldwide pensions and other assets as a ‘Long Term Resident’.
• UK resident 19 years (of last 20yrs) means 9 further tax years as non-resident and still within scope of UK IHT rules on worldwide pensions and other assets as a ‘Long Term Resident’.
• UK resident 20 years (of last 20yrs) means 10 further tax years as non-resident and still within scope of UK IHT rules on worldwide pensions and other assets as a ‘Long Term Resident’.
• On completing 10 consecutive years as non-UK resident you lose the status of ‘Long Term Resident’ and revert to only UK assets and pensions being included in the estate for UK Inheritance taxes.  (This aligns with the 10 consecutive years of non-residence required to be able to access the 4-year Foreign Income and Gains (FIG) regime should you then return to the UK.

We suggest the above is a positive move in that it simplifies matters into factual numbers and periods of time.  Domicile is open to interpretation but you are either resident or long term resident for specific periods of time or not.

Contact  Call Back  Calculators  Our Fees