NEWS & VIEWS
In the 2024 Autumn Budget, Chancellor Rachel Reeves confirmed that the concept of domicile would be removed from the UK tax system and replaced with a new, residence-based regime for foreign income and gains (FIG) from the start of the 2025/26 tax year.
The concept of domicile has been part of the UK tax system for over 200 years. There are four types under UK law:
- Domicile of origin: this is inherited from your father, if your parents were married, or your mother, if your parents were unmarried.
- Domicile of choice: this is acquired by someone who settles permanently in a new country and severs ties with their domicile of origin.
- Domicile of dependency: this refers to the domicile of individuals with no legal capacity, such as children, whose domicile will follow that of the person they are dependent upon.
- Deemed domicile: this took effect from 6 April 2017 and applies to anyone who has been resident in the UK for 15 out of the last 20 years or was born in the UK and has the UK as their domicile of origin.
Individuals who are both UK-domiciled and UK-resident generally pay tax in the UK on an ‘arising’ basis. This means they will pay UK tax on their foreign income and gains, regardless of whether they bring it into the UK.
By contrast, non-UK-domiciled individuals can, until 6 April, claim the remittance basis of taxation, even if they are UK resident. This means they are only obligated to pay UK tax on their foreign income and gains that were sourced in or brought to the UK.
According to HMRC, there were around 55,500 non-domiciled individuals resident in the UK in the 2021/22 tax year. 68% of these individuals paid tax on the remittance basis.
The new, residence-based regime
The new regime will remove domicile as a relevant factor for UK tax purposes. Instead, any individual who is deemed UK-resident will pay tax on any worldwide income and gains arising after 5 April 2025.
However, new arrivals to the UK will be able to claim 100% relief on any eligible FIG, provided they have not been UK tax resident in the ten years immediately prior to their arrival. After four years of UK residence, these individuals will also become subject to UK tax on their worldwide income and gains.
To soften the initial impact of the new, residence-based tax regime, transitional arrangements have been outlined by the government for individuals who previously claimed the remittance basis of taxation.
Transitional arrangements for non-doms
Temporary Repatriation Facility
The Temporary Repatriation Facility (TRF) has been designed to allow individuals who have previously claimed the remittance basis of tax to bring foreign income and gains dated before 6 April 2025 into the UK at a reduced tax rate.
For the 2025/26 and 2026/27 tax years, the reduced tax rate will be 12%. For 2027/28, the rate will be 15%.
There are two conditions to be eligible for the TRF: the individual must have claimed the remittance basis in at least one tax year between 2017/18 and 2024/25 and must not have been UK-domiciled or deemed-domiciled at any time before the tax year 2025/26.
That being said, it has been reported that some aspects of the TRF may be updated before the start of the new tax year.
Speaking at the World Economic Forum in Switzerland back in January, Chancellor Rachel Reeves suggested that some amendments may be made to increase the generosity of the TRF. However, at time of publication, the bill is currently at second reading in the House of Lords and so there unlikely to be significant changes.
Option to rebase assets
Those who have historically claimed the remittance basis users will also have the option of rebasing their personally held assets.
Like with the TRF, there are conditions to eligibility. First, the taxpayer must be an individual and have directly held the asset they want to rebase from April 2017. Second, the taxpayer must have claimed the remittance basis in at least one year between 6 April 2017 and 5 April 2025 and have not been UK or deemed domicile before 6 April 2025.
How FSL can help
Our developers have been hard at work to create a solution that will enable CGiX users to better support their non-domiciled clients through the transitional phase of the new residence-based tax regime.
The new FIG asset rebasing report provides users with a bird’s eye view of an impacted client’s assets from 5 April 2017 to 6 April 2025, including detail about the assets’ classification and country of incorporation. By providing this information, users can better identify which of their client’s holdings can be rebased under the new rules.
The report also allows users to compare the book cost of assets as of 5 April 2017 with its market value on that same date for each client, enabling users to provide advice regarding the potential advantages of opting to rebase certain assets.