Reforms to Non-Domiciled Tax – what the election might bring…?

First published on 10 June 2024 by Alastair
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On 6 March, as part of the Spring Budget, Jeremy Hunt announced major reforms to the tax rules surrounding those individuals who are UK tax resident but non-UK domiciled and making use of the remittance basis of assessment.

As a consequence, the remittance scheme was to be abolished with a new residence-based system being put in place. Taxpayers arriving in the UK for the first time or returning after at least 10 years overseas would have been able to elect not to be taxed on their foreign income and gains during the first four years of UK residency: this was to be called the FIG regime. After these four years of UK residency, taxpayers would be taxed on their worldwide income and gains.

This was to have been effective from 6 April 2025.

Now a General Election has been called and in order to get the Finance Act through before the dissolution of Parliament, the reforms to Non-Domiciles have been cut.

Whichever party wins on 4 July, there are likely to be further reforms proposed. Labour has previously stated they want to abolish domicile as a tax concept all together. The Conservatives are now adopting a similar attitude to income and gains, with the major difference in approach being offshore trusts.

As part of the spring Budget, the government was intending to allow ‘excluded property’ trusts that were established before 6 April 2025 to retain that status. This would keep the trust outside the scope of UK IHT for 10-year anniversary and exit charges. The gift with reservation of benefit rules would be unchanged so the ‘excluded property’ would not form part of the settlor’s estate, even where the settlor retained a benefit in the trust.

Labour however proposes removing ‘excluded property’ trust protections entirely and reforms would apply to all trusts whenever they were established.

At present it really is the case of watch this page and for affected individuals there is still uncertainty. One consequence might be that when there is a further Budget, later in the year, there will be less time to plan for what seems inevitable changes.

Alison Prior, Tax Senior Manager, M&S Accountancy and Taxation


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