WHAT DOES THE FUTURE LOOK LIKE FOR NON-DOMS?

By Mattew Curtis, Director, Hong Kong, The Fry Group

This year’s UK Spring Budget included significant changes concerning the way UK tax will be calculated for non-UK domiciled individuals (non-doms). Matthew Curtis, Director at The Fry Group’s Hong Kong office, looks at what’s been proposed and the potential impact for non-doms and those planning a move to the UK.

Non-doms have been on the political agenda in the UK for some time, so it wasn’t a great surprise to see new proposals concerning how such individuals may be taxed. If you’re a non-dom you’re generally living in a different country to the one you’re domiciled in, which can allow you to access certain advantageous tax rules When it comes to the UK, non-doms can opt to pay tax under the ‘remittance basis’, leaving overseas interests outside of the UK tax net as long as they’re not remitted or enjoyed in the UK. The new proposals suggest that this current regime will be replaced with a residence-based test which will apply if you’ve not been UK tax resident in the last ten years As a result, it could have a positive impact for long-term expats on their return, as well as those who choose to move to the UK from Hong Kong.

What is domicile and why does it matter?

Domicile has always been an important topic for those with both UK and overseas connections. Simply put, your domicile status determines how much UK tax you pay. Under the current rules if you’re not UK domiciled but are UK tax resident you’ll be charged UK tax on your UK income and gains However, your overseas income and gains can be excluded from UK tax as long as various conditions are met. If you’re UK domiciled and UK tax resident you’ll be taxed on your worldwide income and gains, and won’t be able to shelter overseas income and gains from UK taxation Finally, and most compellingly, if you’re non UK domiciled, generally, you’ll only currently face 40% UK Inheritance Tax (IHT) on any UK assets. Any overseas assets don’t attract any IHT at all On the flip side, if you’re UK domiciled, you’ll face 40% IHT on any worldwide assets - even if you no longer live in the UK.

When do the new rules apply?

The new rules are set to apply from 6 April 2025, although draft legislation is yet to be published, and a general election could affect the shape and form of what’s actually introduced. However, it’s sensible to understand what’s being proposed. Here are some of the key considerations:

I’m planning a move to the UK – how will the new rules affect me?

If you arrive in the UK on or after 6 April 2025, and were non-UK resident for the previous 10 tax years, it’s only the new rules you need to consider For the first four tax years in which you’re UK resident you can elect to pay UK tax only on your UK income and gains Any foreign income and gains won’t be taxed in the UK even if you bring them in. This will be known as the ‘FIG’ (Foreign Income and Gains) regime. If you moved last tax year (2023/24) or will be in this current tax year (2024/25) you'll experience a limited period under the current rules and your ability to use the FIG regime will cease as you move into your fifth tax year of residence After that you’ll be taxed in the UK on all of your worldwide income and gains The phased approach should give more time to plan what to do with your non-UK assets and move these to the UK, with no UK tax consequences.

What will happen to non-UK trusts?

The government made it clear that they wish to tackle the benefits which non-UK trust structures offer There’s been confirmation that Trust Protections (introduced in April 2017) will be removed for all nonUK income and gains which use these structures after April 2025. Whilst we had understood that Trusts established by non-doms before April 2025 should still continue to benefit from ‘excluded property’ trust status, Labour have made their view clear; if they were to be elected, their position would reverse this statement.

How will historic overseas income and gains be dealt with?

Any historic non-UK income and gains won’t be taxed in the UK if you don’t ‘remit’ it to the UK. From 6 April 2025, for a two-year period, another option will be to remit funds into the UK and pay a flat 12% rate of tax. If you plan to bring funds into the UK but don’t want to face the full tax rates this might be a useful option to consider However, it’s very likely that evidence will be needed about the value you’re remitting, especially if you’re claiming that entire amount shouldn’t be taxed

Taking action

For the time being it’s useful to be aware of the proposals whilst remembering that they are only suggestions The 2015 Budget also featured proposed changes for non-doms (although not to the scale announced in March) but the changes took until June 2017 to be legislated – three months after the start of the tax year in which they came into effect. There were also significant amendments in the journey from the announcement to actual legislation! The time to act, if needed, will be when more detail is revealed later in the year.

The same is true of the IHT discussions – at this stage they are simply questions in a consultation Whilst it certainly gives an indication of the government’s direction of travel, nothing has yet made its way into a formal proposal. There’s no doubt that the next steps will be steered by the consultation so it’s very much a situation where we need to just watch this space.

About The Fry Group

With a network of global offices across Hong Kong, Singapore, the UK, Belgium and the Middle East, The Fry Group offers financial planning advice on investments, UK tax planning and mitigation, retirement planning and wills, trusts and estate planning.

Established in 1898, we help clients maximise their wealth with the aim of helping each one achieve financial freedom www.thefrygroup.hk

Matthew Curtis Director, Hong Kong