Spring Budget—a closer look at the reforms for non-domiciled UK residents

Private client partner Andrew Godfrey weighs up the changes to the tax regime for those non domiciled within the UK, as announced in the Chancellor's Spring Budget.

“For things to remain the same, everything must change” – Il Gattopardo

The Chancellor has announced changes to the tax regime for those not domiciled within the UK.  But how far do those changes really go?  

A similar tax system is proposed which is not based on domicile but is rather for ‘new arrivals’ instead.  It will allow the benefit of no tax on foreign income and gains for the first four years of residence in the UK.  Plus, there will be the advantage over the current system of those funds being able to be brought into the UK at no additional tax charge. This will answer the previous criticism that funds were being kept outside the UK.

Beyond four years of residence there will not be any relief available for foreign income and gains – a significant reduction from the current period.

There will be a transitional period of a year for existing ‘non-doms’ who have been here for more than four years. For the first year 2025-26 they will only suffer tax on foreign income and gains at half the normal rate.  They will also have two years (2025-26 and 2026-27) to bring in previously accrued foreign income and gains at a reduced rate of 12% - a sweetener to bring funds into the UK and simplify matters.

There are also proposals to simplify the provisions around non-resident trusts, but nothing is due to happen until April 2025 in any event, by which time there may be big changes politically in the UK.

For Inheritance Tax (IHT) there will be a consultation on proposals for new arrivals:

• Effectively to reduce the period during which there is no IHT on foreign assets to ten years
• Increase to ten years the period for which foreign assets remain subject to IHT after someone leaves the UK
• No start date announced for any changes, but will not be before 6 April 2025
• In any event, no change for existing Excluded Property Trusts (which work to keep foreign assets outside of UK IHT) is proposed

We will have to wait and see what the final provisions are, and also how they will compare with the many such similar regimes now offered by other countries. Worth remembering that these are only tax changes that are being proposed – as you would expect from the Budget.  Domicile is also a connecting factor for many legal areas including succession. The domicile of an individual will certainly still be a factor in understanding cross-border succession for individuals.