Globally Speaking | March 18, 2024

Non-dom analysis: pre-arrival

I am planning to move to the UK – how will the new residence-based exemption rules apply to me and is there anything I need to do before moving?

It is important to bear in mind that the changes announced by the UK government on 6 March 2024 remain subject to legislation and in any event take effect from 6 April 2025 (the 2025/26 tax year). This means that we have one more tax year (running from 6 April 2024 to 5 April 2025) under the existing regime.

The existing regime

A person who is not UK domiciled (and not deemed domiciled in the UK) can currently come to the UK and claim the remittance basis of taxation. The application of the remittance basis means that such individuals are only exposed to UK tax on:

  • UK source income and gains on UK sited assets (or indirectly held UK property interests); and
  • any foreign income and/or gains (“FIGs”) that they bring in or remit to the UK.

Consequently, FIGs kept outside the UK are outside of the UK tax net.

A claim for the remittance basis is made in the taxpayer’s self-assessment tax return. It is possible to claim the remittance basis for the first seven years of UK residence without charge; thereafter an annual remittance basis charge is levied depending on how long a person remains UK resident.

Under the Spring Budget measures, the remittance basis will be abolished from 6 April 2025.

There are currently different rules that apply to individuals who were born in the UK with a UK domicile of origin, so called “formerly domiciled residents (“FDRs”), which prevent them from claiming the remittance basis. These rules will also be abolished from 6 April 2025. 

The new four-year exemption regime

It is proposed that a new four-year residence-based exemption regime will apply for FIGs (“four-year FIG regime”) from 6 April 2025. What this means in practice is that qualifying individuals will be exempt from UK tax on their FIGs for the first four years of UK residence, regardless of whether the FIGs are brought to the UK or not. There will be no charge to access the regime.

Will I qualify for the four-year FIG regime?

Domicile will no longer be a relevant consideration. Instead, it is proposed that anyone who has been non-UK resident for at least ten consecutive tax years will be eligible, including FDRs who are prevented from claiming the remittance basis under the current regime.

Those who have been UK resident for even one or two tax years (for example) during the preceding ten tax years will not qualify for exemption under the new regime, and will instead become immediately liable to UK income tax and capital gains tax on a worldwide basis in their first year of UK residence from 5 April 2025.

The four-year FIG regime is restricted to four tax years from an individual’s first year of UK residence. Consequently, should such an individual become UK resident in tax year 2025/26 for the first time, but then become non-UK resident in tax years 2026/27 and 2027/28, they will only be able to access the regime for one more tax year: in 2028/29. Similarly, if an individual becomes UK resident from 6 April 2024, they will only have three tax years from 6 April 2025 in which to access the four-year FIG regime. They would then need to be non-UK resident for ten tax years to “re-set and access the four-year FIG regime again.

What if I stay longer than four years?

It is common for clients to come to the UK with the intention to stay longer, particularly when a child is at school here. Typically, that will mean that they are in the UK for at least seven years. Under the four-year FIG regime, after four years of UK residence, they will be exposed to UK tax on their worldwide income and gains.

What happens if I become UK resident before 6 April 2025?

If an individual is UK resident in tax year 2024/25, they can claim the remittance basis provided they are not domiciled (or deemed domiciled) in the UK. 

If they qualify for the four-year FIG regime in tax year 2025/26 (and potentially up to two further tax years, if tax year 2024/25 is their only year of UK residence in the previous ten tax years), they can then remit to the UK their current year FIGs without a tax charge. Any previously unremitted FIGs arising in tax year 2024/25 (or previous periods of UK residence) can be remitted to the UK under transitional reliefs and will be taxed at a tax rate of only 12%, provided they claimed the remittance basis in 2024/25. This is a much lower rate than the rates normally applying to remittances of income (up to 45%) and gains (up to 20% or 28%). This favourable rate is only available for remittances made in 2025/26 and 2026/27.

It will still be necessary to seek advice in relation to the individual’s domicile position if they plan to come to the UK before 6 April 2025.

What if I arrive part-way through a tax year?

Generally, residence for part of the UK tax year is regarded as residence for the entire tax year. However, in certain defined circumstances “split year treatment is available to those arriving part-way through a tax year. The individual is consequently treated as UK tax resident only for the “UK part of the tax year. The technical paper accompanying the Spring Budget suggests that split years will count as full years for the purposes of the four-year FIG regime, meaning that, in practice, the favourable treatment could be available for less than four full tax years.

What action should I take before my arrival in the UK?

It is vital that individuals have a clear understanding of their status under the UK’s Statutory Residence Test (for further information on this Test, click here). This test is fact-specific and dynamic, and residence should be reviewed each tax year.

If an individual intends to become UK resident in tax year 2024/25, they should still consider taking steps to ringfence a pot of clean capital which can be remitted into the UK without any tax implications. Specific professional advice should be taken. It will also be important to ensure that their FIGs arising in tax year 2024/25 are segregated from any FIGs arising from 6 April 2025 onwards. For the same reason, those who have FIGs from a previous period of UK residence (over ten years ago) should keep it separate from FIGs arising after 6 April 2025.

Appropriate pre-arrival planning may also include the rebasing of assets, accelerating the receipt of income and/or the creation of offshore trusts. Given proposed changes to the treatment of so called “excluded property trusts for UK inheritance tax purposes from 6 April 2025, advice should be sought on the appropriateness of creating such a trust in tax year 2024/25 (for further information, please see “Non-dom analysis: inheritance tax”).

If practical, it may be simpler for individuals to manage their day counts so that they can spend some time in the UK but not enough to be treated as UK resident in tax year 2024/25 and have the full four years of the four-year FIG regime available to them from tax year 2025/26.