The next stop on the Non-Dom rollercoaster - Budget Day
A summary of what we know with regards to Non-Dom reforms and predictions ahead of Budget Day
A summary of what we know regarding Non-Dom reforms and predictions ahead of Budget Day
Often, we can see large changes to tax policy a little like a railway line, with various ‘stations’ or ‘stops’ along the way. The beginning of the line is the policy announcement, often at Budget, or at what we fondly remember as the Autumn Statement. The next station on the line might be a detailed policy statement, perhaps followed by a consultation document. Once the consultation responses have been gathered, the train moves forward to draft legislation, then to the Finance Bill and any amendments before reaching its destination of Royal Assent and becoming legislation.
By contrast, the changes to the taxation of non-doms, and the move from a domicile to residence basis for inheritance tax (IHT), might be characterised a little more like a rollercoaster. Certainly, the last six months or so since Jeremy Hunt made the policy announcement in March 2024, have been characterised by uncertainty - twists, turns, and even some plunging into darkness.
Initially, the uncertainty stemmed from the lack of detail in the original proposals. This deepened as we waited for the outcome of the general election, and for more details of the new Government’s position. Following Rachel Reeves’ speech on 29 July there was still no certainty, although some of the questions have changed. With Budget Day fast approaching, we might hope for a clearer idea of the detailed proposals, but there remains the possibility of further changes and delay. Adding to the sense of uncertainty for those affected is the background of press speculation suggesting that the proposals will be delayed or ‘watered down’.
Let’s begin with some certainties: we don’t expect the broad outlines of the policy to change. Less certain, but still expected, is that the remittance basis will be abolished with effect from 6 April 2025. It is possible that this might be delayed, but that seems unlikely. Similarly, we would expect the new foreign income and gains (FIG) regime and the temporary repatriation facility (TRF) to be introduced from that date. It is possible that the FIG regime could be extended to longer than four years, or that the way in which years are counted may be changed, certainly this is something we have highlighted in our representations, but we won’t be holding our breath.
One of the previous Government’s proposals – that a 50 percent reduction will apply to income becoming taxable on the arising basis for the first year - was reversed by the policy announcement in July. However, press speculation suggests that this is an area which may be up for reconsideration.
In terms of details we have been told to expect at the Budget – look out for an announcement of the special reduced rate of tax that will apply to repatriated funds under the TRF as well. Hopefully, there will be an update on the mechanism for this; for example, whether funds must be physically brought to the UK or whether there can be a nomination and details of how any nomination will interact with the mixed fund rules. We also expect to hear the period for which the TRF will be available (there have been hints that it may be longer than the originally suggested two years) and whether it might be extended to income and gains of offshore structures, e.g. offshore trusts. Ideally, we may even see some draft legislation in this area. If the aim of the policy is to encourage non-doms to bring funds into the UK economy – extending both the period of the relief and its scope would seem to be a good move.
Also expected in the Budget is more information around capital gains rebasing relief. Specifically, we hope to learn the date from which assets will be treated as rebased and whether this relief can also be extended to assets held in trust and via offshore companies. Again, we hope this may even be accompanied by draft legislation. Extending the relief to cover gains in trust would certainly be more in-line with the rebasing for the changes to the remittance basis introduced in 2008.
It’s impossible to know how much truth there is to the rumours of ‘watering down’ and ‘delay’, but if we were forced to place a bet it would be on a delay to the IHT changes. When these were initially announced by the previous Government, there was a promise of a consultation on the initial proposals. The policy announcement at the end of July, however, replaced the formal consultation with more informal ‘listening sessions’ held over a two-week period in August. Certainly, our feedback to HMRC was that, given the inactivity over the period of the election, this timetable was too short to allow the needed scrutiny of such a fundamental change, and this opinion seems to be one broadly shared among tax professionals. We hope then that there will be some movement here, with a delay to introduction and an announcement of a full consultation which includes sufficient detail for those impacted to begin making informed decisions, whilst also allowing time to get these complex changes right.
Another possible area of change might be to the 10-year tail. Current proposals suggest that individuals will become subject to IHT on their worldwide assets after 10 years of UK residence and that they will remain taxable on a worldwide basis for 10 years after becoming non-resident. Again, this was an area which we and others highlighted to HMRC in our consultations – noting that no other country has such a long IHT tail and that there is a risk of accidental non-compliance where the descendants of those who left the UK some years ago are unaware of the need to seek UK tax advice. One option would be a return to a test similar to the existing ‘deemed domicile’ test, perhaps with individuals being subject to worldwide IHT when they have been resident in any 10 out of the last 15 years.
The July policy document suggested that there will be a review of the offshore anti-avoidance legislation, including the transfer of assets abroad rules and we may see a further announcement and even a consultation in this area.
Further information on what the proposed changes to the non-dom regime mean for you can be found in our separate blog.
As well as all these possible announcements for non-UK domiciled individuals, there is also much speculation around other possible tax changes. More information on KPMG’s thoughts on the wider Budget and our plans for the day can be found on our dedicated Budget webpage.
Regardless of whether press speculation proves to be correct, there is certainly going to be lots of excitement in this next stage of the rollercoaster ride. On 30 October we hope to have more certainty in some areas, but the ride will be far from over and we will be doing our best to help you navigate the twists and turns ahead. Look out for updates in future editions of Tax Matters Digest where we will help you get up to date with what we know, what we don’t and what’s coming down the tracks.
