Resident Non-Domiciled (RND) rules have been around for a long time. In fact, they were introduced in 1799; George III was ruling Britain, Napoleon had just appointed himself First Consul of France and George Washington died. To this day, the UK is one of very few countries still using the concept of domicile. But 226 years later, this is all about to change, in April 2025.
Spring Budget 2024
After intense pressure from lobbyists, the Labour Party and the press, the Chancellor announced on Wednesday, 6 March 2024 that changes and restrictions would be brought to the regime. Although in stealing a march on the Labour party, the Conservatives hope to frame the new policy, keep some of the original spirit and continue to attract entrepreneurs and foreign talents to emigrate to the UK. The new residence-based rules take inspiration from other European countries, such as France, Italy and Spain, but with some noticeable differences.
The main changes
The notable and significant changes are the abolition of the notion of domicile and the concept of remittance. They can be summarised below, as we await further clarification on the subject from the Government.
- The current regime will be abolished, to be replaced with a four-year, residence-based regime, with effect from 6 April 2025.
- There will be transitional provisions, which will allow for a repatriation of foreign income and gains, taxable on remittance to the UK, for two years from 6 April 2025 at a flat rate of 12%.
- For current non-domiciled individuals there will be a 50% reduction in personal foreign income subject to UK tax in 2025/26 (i.e. in the year of transition) and capital assets can be rebased to values on 5 April 2019 for disposals after 6 April 2025, provided the assets were held on 5 April 2019.
- It is so far understood that excluded property trusts established prior to 6 April 2025 should retain protections for earlier years, but from 6 April 2025 any income and gains arising within them will be taxable on the settlor. It is believed that Inheritance Tax (IHT) protections should endure but we recommend clients should seek further clarification and professional advice.
- Under the new rules, individuals who come to the UK will only be taxable on their UK income and gains for the first four years of UK tax residence, assuming they’ve not been UK tax resident in the preceding 10 years. They will be able to remit foreign income and gains (arising in those four years) to the UK during that time, as we understand, with no further tax charges.
Other points to note
Consequently, the Overseas Workday Relief (OWR) is modified too, removing the obligation to keep offshore the proportion of income relating to duties carried out overseas. The applicable duration of the OWR remains at three years.
IHT planning is also going to be impacted by the proposed changes. The Government is moving the assessment to be exclusively based on residence and no longer on domicile. The specifics of this are not yet known, as the current Government plans to publish a policy consultation followed by draft legislation later this year.
“A modern, simpler and fairer residency-based system”
This is how the Chancellor described the new system in his Budget speech. However, we need to be mindful that this are just proposals and so may change before being turned into legislation. Additionally, we must acknowledge the general election is looming and the arrival of a different Government could mean changes to the rules within a few months – again.
Our wealth of experience
Whilst the use of the remittance basis is most likely coming to an end in April 2025, there is work and planning to do in advance and thereafter there will remain other ways for temporary residents to shelter investment profits from UK taxation.
We’re here to help
PWM International’s highly experienced team offer an independent approach to wealth management for your assets at home and abroad. We work in partnership with you to navigate the challenges and complexities inherent in international financial considerations. If you have questions regarding the new rules, or if you have historical offshore income and gains, please contact us.
At at 28 March 2024.
Partners Wealth Management does not provide tax, legal or accounting advice. It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. Taxation is based on your individual circumstances and may be subject to change.