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UK to Replace Non-Dom Tax Regime with Foreign Income and Gains System · IMI Podcasts

• 0:00
  SPEAKER_00: The UK government has announced plans to replace the resident non-domicile, non-DOM, tax regime with a new four-year foreign income and gains, also known as FIG system, effective April 2025.
• 0:13
  SPEAKER_00: This move follows the previous administration's announcement in March 2024, it would abolish the remittance basis and the domicile concept.
• 0:21
  SPEAKER_00: The technical note released by HM Treasury aims to provide guidance to affected individuals and practitioners.
• 0:28
  SPEAKER_00: The government highlights that, quote, this technical note describes the main changes that will apply from 6th April 2025 to the taxation of non-domiciled individuals already resident in the UK and other individuals who have been non-UK residents and move to the UK.
• 0:46
  SPEAKER_00: End quote.
• 0:47
  SPEAKER_00: Chancellor of the Exchequer, Rachel Reeves, declared that inheritance tax, referred to as IHT, protection for existing trusts settled by non-DOMs would cease.
• 0:57
  SPEAKER_00: The government will introduce a new residence-based IHT regime, effective April 6th, 2025.
• 1:04
  SPEAKER_00: The new regime's primary criterion is whether an individual has been a UK resident for 10 years before the tax year of the chargeable event, including a provision extending the scope to 10 years post-departure from the UK.
• 1:18
  SPEAKER_00: The government emphasizes that, quote, from April 6, 2025, the government intends to move inheritance tax from a domicile-based regime to a residence-based regime.
• 1:29
  SPEAKER_00: This will be subject to consultation, end quote.
• 1:32
  SPEAKER_00: Jimmy Sexton, founder and CEO of Esquire Group, believes, quote, the UK is making every wrong financial decision possible.
• 1:41
  SPEAKER_00: First, Brexit.
• 1:43
  SPEAKER_00: Second, they eliminated tax-free shopping for non-residents, end quote.
• 1:48
  SPEAKER_00: He cites an article claiming that, quote, the abolition of tax-free shopping has cost the UK 11 billion British pounds as shoppers opt for places like Paris and Geneva where they can still shop VAT-free, end quote.
• 2:01
  SPEAKER_00: The new tax framework will have considerable implications for individuals with existing trusts, particularly those settled by non-domiciled individuals before April 6, 2025.
• 2:12
  SPEAKER_00: Under the current rules, non-UK assets settled by a non-UK domiciled settler are generally considered excluded property and not subject to UK IHT.
• 2:24
  SPEAKER_00: HM Treasury has indicated that the current inheritance tax treatment will remain in place for any non-UK property settled by a non-UK domiciled settler and included in a settlement before April 6, 2025.
• 2:38
  SPEAKER_00: This suggests that existing excluded property trusts settled before this date may retain their inheritance tax protection, although this is subject to any future anti-avoidance provisions that the government may introduce.
• 2:51
  SPEAKER_00: However, the technical note also mentions that, quote, new trusts and additions to existing trusts made by a non-UK domiciled settler on or after April 6, 2025, will be subject to new residence-based rules, end quote, indicating that any new assets added to existing trusts or new trusts created by non-domiciled individuals after April 5th, 2025, will fall under the new residence-based IHT regime.
• 3:21
  SPEAKER_00: Sexton argues that abolishing the non-Dom regime will further hurt their tax revenues.
• 3:27
  SPEAKER_00: He explains that, quote, the significant benefit of the non-Dom regime was that foreign income was exempt from UK income tax unless remitted to the UK, and foreign assets were exempt from UK inheritance tax, end quote.
• 3:42
  SPEAKER_00: By the way, IMI pro members can read all about European special tax regimes in our 11 special regimes for low-tax living in high-tax Europe.
• 3:51
  SPEAKER_00: Report available in our Pro Members Lounge.
• 3:54
  SPEAKER_00: Settlers who do not qualify for the new four-year FIG regime will face changes in the taxation of trust income and gains.
• 4:03
  SPEAKER_00: From April 6, 2025, non-domiciled and deemed domiciled individuals who do not qualify for the new four-year FIG regime will no longer be protected from tax on income and gains arising within settler-interested trust structures.
• 4:19
  SPEAKER_00: This means settlers who have been UK residents for more than four tax years will be subject to income tax and capital gains.
• 4:27
  SPEAKER_00: Tax on trust income and gains arising from April 6, 2025, even if the trusts were established before this date.
• 4:35
  SPEAKER_00: While acknowledging that only a minority of non-DOMs are wealthy and truly benefit from the regime, Sexton maintains that the UK benefits as well.
• 4:44
  SPEAKER_00: He points out that, quote, the wealthy non-DOMs spend money in the UK, and the businesses that receive that income employ people and pay UK income taxes.
• 4:54
  SPEAKER_00: They also pay a lot in VAT on the money they spend in the UK, end quote.
• 4:59
  SPEAKER_00: The four-year FIG regime will allow individuals who have not been UK residents for the 10 years preceding the 2025-26 tax year to remit FIG tax-free to the UK for up to four years.
• 5:13
  SPEAKER_00: According to HM Treasury, individuals who qualify for the new four-year FIG regime will not be subject to tax on FIG arising in the first four tax years after becoming UK tax residents.
• 5:26
  SPEAKER_00: These individuals will be able to bring these funds to the UK without incurring any additional charges.
• 5:32
  SPEAKER_00: They will also not be required to pay tax on distributions from non-resident trusts during this period.
• 5:38
  SPEAKER_00: The new four-year FIG regime, while offering benefits for new arrivals, is hardly as attractive as the current non-Dom regime, according to Sexton.
• 5:48
  SPEAKER_00: He also notes that, quote, as far as I can tell, current non-DOMs cannot take advantage of the new regime, end quote.
• 5:56
  SPEAKER_00: Transitional provisions from the previous government will continue, except for the one-year 50% reduction in foreign income taxation for those in the UK for fewer than 15 years.
• 6:07
  SPEAKER_00: HM Treasury has explained that individuals who move from the remittance basis to the arising basis on April 6, 2025, and are not eligible for the new four-year FIG regime.
• 6:19
  SPEAKER_00: For the 2025-2026 tax year only, these individuals must pay tax on 50% of their foreign income.
• 6:27
  SPEAKER_00: It is important to note that this reduction applies exclusively to foreign income and does not extend to foreign chargeable gains.
• 6:34
  SPEAKER_00: The temporary repatriation facility, also known as TRF, will remain, with more details to come in the budget on October 30th, 2024.
• 6:44
  SPEAKER_00: The government will review complex anti-avoidance legislation for offshore trusts, with any changes effective from April 6, 2026 at the earliest.
• 6:54
  SPEAKER_00: The technical note mentions that, quote, from April 6, 2025, individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 FIG under a new TRF that will be available for tax years 2025-26 and 2026-27, end quote.
• 7:17
  SPEAKER_00: Sexton predicts the UK will lose most of their wealthy non-DOMs due to this change.
• 7:23
  SPEAKER_00: He reveals that, quote, every single one of my non-DOM clients is leaving, and I know this is true for other advisors' clients as well.
• 7:31
  SPEAKER_00: End quote.
• 7:32
  SPEAKER_00: He believes, money will go where it is welcome and it isn't welcome in the UK anymore.
• 7:38
  SPEAKER_00: While existing excluded property trusts may retain some IHT protection, individuals with trusts settled by non-domiciled individuals should carefully review their trust arrangements and seek professional advice to understand the full implications of the new tax regime on their specific circumstances.
• 7:55
  SPEAKER_00: The government has announced a consultation process to address the design of the new residence-based system, transitional provisions, and other detailed issues.
• 8:06
  SPEAKER_00: Sexton concludes that, quote, the abolition of the non-Dom regime may have been a good political decision to get elected, but it was a bad financial decision, end quote.
• 8:16
  SPEAKER_00: He predicts that the big winners will be the UAE, Italy, and Switzerland, highlighting Italy's recent announcement to double its flat tax from€100,000 to 200,000 euros, as evidence that they know that Italy is one of the few options for non-DOMs who want to stay in Europe.
• 8:37
  SPEAKER_00: This episode first appeared as an article by Amada Boss on IMIDAily.com.
• 8:42
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• 8:49
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