What is changing for non-doms in April 2025?
Under current rules, so-called 'non-doms' that make a claim to use the remittance basis of taxation only pay UK taxes on income and gains that either arise in, or are "remitted to", the UK. Broadly, this means that individuals of non-UK origin could delay or prevent UK tax arising on income and gains kept offshore. This is the case even if they have lived solely in the UK for a number of years, in a way that those of UK origin cannot.
The rules on domicile have long been politically divisive and have been tightened over the years, most notably with the introduction of the remittance basis charge in 2008 and the deemed domicile rules in 2017.
The rules governing when income is treated as remitted to the UK are amongst the most complex on the statute book and usually required difficult planning and record keeping to prevent accidental remittances arising.
As non-doms are subject to UK tax when amounts arising offshore are "remitted" to the UK, non-doms risk being taxed on any such sums used for investment in the UK, unless they are able to claim relief under complex business investment relief rules.
As announced in the UK's Budget in March 2024, the current Government proposed to change the rules from April 2025, and non-UK domiciled individuals who have lived in the UK for at least four years, will be taxed on their worldwide income and gains 'as they arise', just like those residents of UK origin. The current Government set out a number of provisions to implement the transition to the new regime, including a 50% reduction in foreign income (but not gains) subject to tax in the tax year 2025-26 for non-doms who will lose access to the remittance basis on 6 April 2025.
What are the Labour party's plans for the non-dom regime?
Labour's proposals go further than the current Government's existing plans and include:
- Scrapping the transition-relief for foreign income
The Labour Party is proposing to cancel the 50% income tax discount in the first year of implementation of the new regime. Should the Labour Party form a Government in early July, those affected can expect transitional relief not to be available and to be taxed on worldwide income and gains from 6 April 2025.
- "Explore ways to encourage" repatriation of assets stockpiled abroad
Non-doms paying tax on the remittance basis are currently charged at their marginal tax rate for any foreign income and gains "remitted" to the UK. From 2025, the current Government planned to introduce a temporary repatriation facility. This would allow non-doms to bring in historic (pre-6 April 2025) foreign income and gains to the UK at a flat 12% tax-rate for two years.
Labour has indicated that it supports the idea of encouraging non-doms to repatriate their stockpiled income and gains, but the precise details of their plan have not been announced.
- Charge inheritance tax on all non-UK assets held on trust
Finally, and perhaps most controversially, Labour has announced that it will include all foreign assets held in a trust within UK inheritance tax, whenever they were put into trust. It is not exactly clear how this would apply, but this could result in a significant tax bill for some. Therefore, any non-doms using trusts for tax planning should take inheritance tax advice as soon as possible. The current Government had also said that it planned to reform the inheritance tax system from April 2025 so that it was based on residence rather than domicile but it seemed likely that assets already placed into trust would not be affected.
