The new Government push ahead with Non-Dom Reform

Since the significant announcements by the previous Government at Spring Budget 2024 regarding the non-dom reforms, those potentially affected and their advisers have been analysing the impact of the proposed changes and monitoring developments. Following the formation of the new Government and with Labour having a competing list of priorities, it was unclear whether those potentially impacted would have to wait until the Autumn Budget for any further information about the direction of tax policy on these proposals.

Many will therefore welcome the publication of a Policy Summary on the reforms alongside confirmation of the date of the Autumn Budget as 30 October 2024. It was already understood that Labour supported most aspects of the proposed residence-based regime or four-year foreign income and gains (FIG) regime. However, the Policy Summary provides some further information and this is summarised below.

It was confirmed in the Policy Summary that the new four-year FIG regime will apply from 6 April 2025 for income tax and capital gains tax, and unlike some had expected, there will be no delay to implementation post this date. As previously announced the regime will last four tax years for new arrivals, and during this period FIG will receive 100 percent relief. Individuals will be eligible following a period of 10 consecutive tax years of non-UK residence. There is no mention of any charge for using the regime.

The Policy Summary confirmed the following for those not eligible for the four-year FIG regime:

• Whilst the previous Government proposed that those transitioning from the remittance basis to arising basis in 2025/26 would only be taxable on 50 percent of their foreign income in that year, the new Government has confirmed it will not go ahead with this provision;
• The previous Government had an intention to allow rebasing of foreign assets to 5 April 2019 for previous remittance basis users. This rebasing will be retained, although the date of rebasing will be reconsidered and confirmed at the Budget; and
• The previously proposed Temporary Repatriation Facility (TRF) will remain, so that individuals that have previously claimed the remittance basis will be able to remit FIG that arose prior to 6 April 2025 and pay a reduced tax rate. In terms of the rate and duration, these will be reviewed and confirmed at the Budget, to make such a facility “as attractive as possible”. Of interest for non-dom individuals, the Government has stated that it is exploring ways to extend this to “include stockpiled income and gains within overseas structures”. The previous Government had indicated such relief was only for foreign income and gains arising to an individual personally.

Interestingly, there was no mention in the Policy Summary of an investment incentive available to those eligible for the regime to make UK investment income free of UK tax which it is understood the Labour Party had previously indicated it would consider. It is therefore not clear whether this proposal has been abandoned, or whether it may follow in the further detail to be published in the Autumn Budget or at a later time.

The Policy Summary confirmed that Trust Protections will be removed from 6 April 2025 with all foreign income and gains arising in a non-UK resident trust being taxable on UK resident settlors who do not qualify for the FIG regime.

There was also a new announcement of a review of offshore anti-avoidance provisions, including Transfer of Assets Abroad and Settlements Legislation, to remove “ambiguity and uncertainty in the legislation” with any amendments to be applied from 2026/27 at the earliest.

The Policy Summary included welcome confirmation that OWR will be retained as previously anticipated. Further stakeholder engagement will follow on the terms of the relief, and details will be confirmed in the forthcoming Budget. The new Policy Summary contains no comment on the transitional or future proposals for OWR, which were previously outlined in the 6 March 2024 technical paper, so it remains to be seen what shape OWR will take going forward under the new Government.

Our separate article on Inheritance Tax (IHT) changes from 6 April 2025 comments on what the Policy Summary covers on changing the scope of IHT from being a domicile-based tax to residency-based.

For affected parties, the publication of the Policy Summary provides clarity in terms of the date changes will be effective from, what other points of policy are still outstanding and which of these gaps will be filled in at the Autumn Budget. What is perhaps reassuring for those impacted and their advisers is that a Budget date of 30 October should, subject to the publication of draft legislation, allow some time to consider any suitable actions to take pre-6 April 2025.

Stakeholders will hope comments and queries gathered by HM Treasury at the prior ‘listening sessions’ will be incorporated into such legislation and again, it is encouraging the Policy Summary states the Government will share plans to engage further with interested parties in due course.

Please do not hesitate to contact the authors or your usual KPMG in the UK contact to discuss these reforms in further detail.

For further information please contact:

• Edward Brown
• Anna Willasey