On 29 July 2024 the Chancellor of the Exchequer, Rachel Reeves has confirmed the removal of preferential tax treatment based on domicile status for all new foreign income and gains (FIG) that arise from 6 April 2025 and the implementation of a new residence-based regime. A 4-year foreign income and gains (FIG) regime announced previously will be retained but revised to eliminate existing non-domicile advantages.
New Regime for Foreign Income and Gains
Starting 6 April 2025 a new residence-based regime will offer 100% relief on FIG for newcomers to the UK in their first four years, provided they have not been UK tax residents in the prior 10 years. Overseas Workday Relief (OWR) will continue, with details to be confirmed.
Protection from tax on income and gains within settlor-interested trust structures will also end for non-domiciled individuals unless they qualify for the 4-year FIG regime.
Transitional Arrangements
The planned 50% reduction in foreign income tax for those losing remittance basis access will not proceed.
Foreign Income Gains (FIG) arising before 6 April 2025 will remain taxable upon remittance to the UK. A Temporary Repatriation Facility (TRF) will allow reduced tax rates for remitted FIG for a limited period. The TRF’s scope might expand, with details forthcoming.
UK residents ineligible for the 4-year FIG regime will pay Capital Gains Tax (CGT) on foreign gains. However users of the remittance basis can rebase foreign assets to their value at the new regime’s start date.
New Regime for Inheritance Tax
From 6 April 2025, inheritance tax (IHT) will switch from a domicile-based to a residence-based system. Non-UK assets will be in scope for IHT if the person was UK-resident for 10 years before the chargeable event with provision to keep a person in scope for 10 years after leaving the UK.
The use of Excluded Property Trusts to avoid IHT will end, with new rules ensuring fair treatment for all long-term UK residents.
Next Steps
The government will review offshore anti-avoidance legislation to modernize rules and remove ambiguities, with changes expected by the 2026/27 tax year.
Detailed rules and transitional arrangements will be published after stakeholder engagement.
Further details on engagement sessions for IHT and OWR will be published in due course.
If you have any questions about the above, please get it touch with your usual Vera Group contact or send us an email to info@veragroupltd.com