Four-year Foreign Income and Gains regime confirmed – how will this affect ‘non-doms’?

The UK’s recent Budget on 30 October followed significant debate on how the newly elected Labour party would change the tax rules applying to non-UK domiciled individuals (known as non-doms and broadly defined as those living in the UK but with their ‘permanent home’ abroad) and/or the tax rules applying to non-UK resident trusts (often referred to as ‘offshore trusts’).

The current proposals are very detailed, running to some 101 pages of draft legislation, and the government is still to finalise the new legislation. As such, the draft nature of the new provisions does need to be borne in mind by readers but the released detail provides significantly greater certainty on matters and allow impacted non-doms to begin assessing their options.

The Foreign Income and Gains regime

From 6 April 2025, the Foreign Income and Gains (FIG) regime (outlined in Robert Payne’s previous article), will come into effect replacing the current remittance basis of taxation. The latter was assessed via the application of the concept of ‘domicile’ (a longer-term and more fixed concept of where an individual regards as their home); whereas the new regime moves to the concept of ‘residence’ (a shorter-term concept often prone to more fluctuation and assessed year to year in line with an individual’s physical presence in one or more countries).

The FIG regime will allow an individual to bring funds into the UK (previously known as ‘remitting’) without charge during the first 4 years of their UK residency. For those already UK resident, if they are currently under the 4-year threshold, they will be able to benefit from this new regime until they meet that threshold. For those already UK resident and who exceed the threshold as at 5 April 2025, then their worldwide income and gains will then be subject to UK taxation. Individuals who have been UK resident within the past 10 UK tax years but are currently non-UK resident and intend to return to the UK, will however be barred from the FIG regime.

For these purposes a split-year of UK residence will be treated as counting fully towards this threshold. Making such a claim has historically been helpful in counting towards the temporary non-resident CGT rules that require over 5 years of UK non-residence but now such a claim should be carefully considered before being made. As ever, detailed and specialist advice is required for each individual’s circumstances.

Similar to the remittance basis currently, the FIG claim will be made in an individual’s tax return after the end of the relevant tax year. As with the remittance basis, such a claim will sacrifice the individual’s income tax and capital gains tax (CGT) personal allowances. The FIG does allow flexibility in selecting whether it will apply to income, gains or indeed both income and gains in each respective tax year.

The FIG ‘clock’ can be reset if an individual is outside of the UK/non-UK resident for a 10-year consecutive spell. Impacted individuals should also be mindful of bringing funds to the UK from their pre-5 April 2025 funds that were previously assessed under the remittance basis as they could still trigger a remittance under the old rules (although see the below section on the TRF).

One advantage of the new FIG regime is that it is available to all taxpayers, not simply non-doms, as the remittance basis of taxation had been. As such anyone considering a return to the UK from abroad may potentially be able to avail themselves of this new regime with favourable tax results.

That said, clearly there will be a number of non-doms who will already exceed the 4-year FIG threshold on 5 April 2025 and will move from filing on the remittance basis to a worldwide basis for the first time. It may be that the two favourable tax mechanisms below help “soften” that blow.

The Temporary Repatriation Facility

In an apparent effort to address one of the perceived fundamental flaws of the remittance basis (that it essentially discouraging non-doms from bringing non-UK funds into the UK to spend/invest less they trigger a tax charge), the Budget has introduced a type of low tax amnesty on such funds, the Temporary Repatriation Facility (TRF). The TRF can be utilised to bring in funds that arose outside of the UK under the current remittance basis regime in this and previous tax years at a fixed tax rate (as opposed to having to apply the rather complex remittance basis rules which often lead to such amounts being taxed at the highest rates of CGT and income tax when brought to the UK).

Indeed, the Budget has extended the TRF beyond the initial proposed 2-year window to 3 full tax years and during this period individuals can bring in pre-5 April 2025 income and gains for a flat rate of UK tax of 12% for the first two years and 15% for the final, third year. Thereafter the old remittance rules and, the likely much higher, marginal rate of income tax of the individual would apply. It is also worth noting that no foreign tax credit will be allowed to be offset against these TRF tax rates.

As such the TRF represents a rare opportunity to both avoid the detailed analysis often previously required to identify the make-up of funds being remitted to the UK but also gives certainty of the tax charge being triggered at relatively low rates. It should be noted that any transfer of funds into the UK to meet any TRF tax liability, will be treated as a remittance so may well benefit from being rolled up into the TRF transfer in the first place.

Interestingly, funds can be selected via the TRF (and the relevant tax paid upon them) but are not required to be physically transferred into the UK immediately but can be at a later date. The TRF has also been extended to some non-UK resident/offshore trust structure and we will shortly publish a further article on the Budget’s impact on such structures in greater detail.

Rebasing

From 6 April 2025, non-doms who have:

• claimed the remittance basis;
• never been UK domiciled or UK deemed domiciled at that date; and
• dispose of non-UK personal assets that they owned at 5 April 2017

will be able to claim for the acquisition or base cost of those assets to be rebased to their value as at 5 April 2017. Such an election should allow any ‘pregnant’ capital gains to be reduced by raising the acquisition or base cost in the CGT disposal calculation.

As ever bespoke and expert legal and tax advice is key and the contents of this article is merely for information purposes and should not be relied upon. If you require advice on any of these matters, please contact us.