The Non-Dom changes – the known unknowns

Many will remember the famous Donald Rumsfeld speech on intelligence gathering, where he introduced the idea of known knowns (the things we know we know), the known unknowns (the things we know we do not know) and the unknown unknowns (the things we don’t know we don’t know). Back in the early 2000s many treated the speech with mirth but as time has passed, this way of thinking has become an increasingly helpful way of categorising our knowledge on a subject.

When it comes to the forthcoming changes to the tax landscape for non-UK domiciled individuals, announced at the time of the Spring Budget, much has been written about that first category – the known knowns, but perhaps just as important for advisers considering what actions to suggest to their clients and when, are the known unknowns.

One of the more obvious known unknowns is the timing of the draft legislation. Speculation ranges from ‘summer’ to ‘autumn’ and, of course, the date of release is also likely to be impacted by the date of the General Election (another known unknown). Although the technical note released by HM Treasury does contain a lot of detail about the proposed new regime, there are many points of detail which we hope the draft legislation will fill in, and unanswered questions which we hope will be answered.

One of the things we do know is that it is proposed that only 50 percent of foreign income will be subject to tax in 2025/26 for those moving from the remittance basis to the arising basis. What is less clear is which individuals this will include – will it be only those who have claimed the remittance basis in 2024/25? Those who have not claimed it, but to whom it applies without claim? How about those who would be entitled to the remittance basis, but choose not to make a claim in 2024/25? The Chartered Institute of Taxation (CIOT) has suggested that it should apply to individuals in all three of these categories but the answer will be important for individuals making decisions about the 2024/25 tax year.

Another unknown is which income will qualify for the relief? For example, will it include deemed income like offshore income gains? What about chargeable event gains on life insurance (which is deemed to be income but would not currently qualify for the remittance basis)? Will it apply to income of other entities or structures, treated as income arising to the individual under the transfer of assets abroad or settlor interested trust rules?

To add to the unknowns here, the Labour Party has suggested that, should it win the General Election, it would not implement this part of the proposals at all.

HM Treasury’s technical note made clear that there is an intention to allow rebasing of foreign assets to 5 April 2019. We know that these rules will apply to individuals “who have claimed the remittance basis”, but it is not clear whether that would extend to those who have claimed the remittance basis at any time, or only those who have claimed it in 2024/25 (the former seems most likely). There is also no mention of those who have qualified for the remittance basis without claim and how they may be affected. Furthermore, the technical note suggests that the rebasing will be “subject to conditions” but these conditions have not been published as of yet.

The note suggests that rebasing will only apply to personally held assets. But which assets? For example will offshore income gains count as gains for this purpose, and can these assets be rebased? We are aware that the CIOT is suggesting to HMRC that assets in trust should also be considered for rebasing, and there does seem to be a strong argument for this, given individuals will be personally assessed on any gains in the same way as personally held assets. It is not impossible that these assets could be subject to some relief following consultation.

From an employer and employee’s perspective, the technical note provided welcome confirmation that OWR will continue to be available for new arrivals in the UK from April 2025, albeit with eligibility being contingent upon the individual qualifying for the Foreign Income and Gains regime. 

Individuals arriving in the UK during 2023/24 and 2024/25 and claiming OWR upon arrival will also be able to continue to avail themselves of that relief for the full three-year period as we cross over into the new regime from April 2025. However, at present it is unknown whether the current rules would continue to apply in such cases, whereby the money must be paid into an offshore account and must not be remitted to the UK for OWR to be available. 

An alternative would be for the simplified new rules to apply to all OWR cases from April 2025 onwards (including those which straddle the current and new rules), meaning that the relief would be available irrespective of whether the salary was paid or kept inside or outside the UK. A consultation process is expected later in the summer and we look forward to discussing the OWR transitional measures in further detail with HMRC in due course.

Again, the technical note provides a good starting point for understanding the TRF. We know that it is proposed that a 12 percent rate will apply to remittances of foreign income and gains (FIGs) made in tax years 2025/26 and 2026/27, and that it will apply to FIGs which arise to an individual personally in a year when they were taxed on the remittance basis. It appears that this will apply whether an individual still claims, or even is entitled to claim, the remittance basis or not, but this has not yet been explicitly stated and remains, therefore, a ‘known unknown’.

We also know that there is a plan to relax the mixed fund ordering rules, but we do not know how this will operate. There is some suggestion that it might be possible to nominate amounts in mixed funds without having to physically remit them, but how will this work in practice? Can nominations take place on an asset by asset, mixed fund by mixed fund basis? And if funds are nominated, can they then be brought to the UK at a later date, or do they risk becoming clean capital and sinking to the bottom of the mixed fund so that they will be treated as remitted last?

Another unknown is whether it will be possible for individuals to nominate FIGs no longer in their possession, but which would be taxed on them personally should it be remitted. For example, if an individual gifted an asset to offshore trustees. In such circumstances, any gain on that gift would remain taxable on the individual should the trustees, for example, remit the proceeds of a disposal by making a UK investment.

The planned inheritance tax (IHT) changes perhaps have the most ‘known unknowns’ since, although we have an outline of the proposals, these are at the earliest stage of development and will be subject to consultation.

We know that it is intended that the domicile basis of IHT will be abolished and that individuals will fall into the UK IHT net once they have been resident here for 10 years and that it is planned for those individuals to remain subject to IHT on their worldwide assets for a further 10 years once they become non-resident. However, there is a proposal to consider ‘additional connecting factors’, but it is not clear what these might be.

We also know that there is a plan to bring an end to excluded property trusts and that the current proposals would allow such trusts established before 6 April 2025 to continue to benefit from this status. However, we do not know precisely how the new rules will work, beyond the fact that it will be dependent on the settlor meeting the 10 year residence condition at the time of settlement and at the time of any charges (although it seems likely that both conditions must be met for a charge to arise). A further area of uncertainty is that the Labour Party has made clear that should it win the General Election it intends to abolish excluded property status, even for existing trusts.

Experience tells us that we may not have all the information that we would like until close to or even after these rules become law. The decision which those impacted and advisers will need to make together is when the level of knowledge is ‘good enough’ to start taking action. The answer to this question is likely to be different for each individual.

One thing is certain though – those who have begun considering the rules early and the likely impact of different scenarios on their own circumstances, identifying the known unknowns so gaps can be filled quickly as more information becomes available, will be in the best position to plan when that point is reached.

Should you have any queries regarding this article, please contact the authors or your usual KPMG in the UK contact.

For further information please contact:

• Gavin Shaw
• Hannah Keens

This article was finalised before the date of the UK General Election was announced late on 22 May 2024. The Election date has now been confirmed as 4 July 2024.