Concept of non-dom or RND
A “UK non-dom” is a person resident in the UK who is considered to be domiciled (i.e. with their permanent home) elsewhere for tax purposes. To determine whether a person is a UK resident, the UK uses a day-counting principle for this purpose (referred to as the Statutory Residence Test). Nevertheless, UK residents without a UK domicile, may under the current law benefit from a preferential tax regime, the so-called “UK non-dom regime”. “UK non-doms” only pay UK tax on their UK income and gains, and can postpone paying UK tax on their non-UK/foreign income and gains. Therefore, they can elect to claim the “remittance basis”, in which case UK income tax is due only in case that income is remitted to the UK. Of course, when a person moves out of the UK before remitting any of that income, this may lead to avoidance of taxation.
In addition, for an individual qualifying as a UK non-dom, UK Inheritance Tax (IHT) is due only on UK situs assets but not on non-UK assets. Those assets only become taxable in the UK once the individual becomes deemed domiciled for UK tax purposes.
The new tax regime for foreign income and capital gains
Who would be eligible for the new regime?
The new regime would be a residence-based regime.
Individuals would qualify for the new simplified 4-year foreign income and gains (FIG) regime if they have been non-UK tax resident for at least ten consecutive years, regardless of their domicile status (RND). The new regime would apply for their first four years of tax residence.
Qualifying individuals would be:
- Newly arriving individuals in the UK from 6 April 2025; and
- Existing tax residents, who have been tax resident for less than four tax years, until the end of their fourth year of tax residence.
Beyond four years of residence, no relief would be available for non-UK income and gains. However, there would be a transitional period.
Limited favourable regime
Qualifying individuals would benefit from a 100% UK tax relief on non-UK income and gains arising in the first four tax years of UK tax residence and would be able to remit these funds to the UK free of charge. This benefit would not be automatically granted but would have to be claimed on a yearly basis.
Non-qualifying individuals would be taxed on a worldwide arising basis, as is currently the case for UK residents who are also UK domiciled or deemed domiciled.
Transitional period for existing non-doms
There would be a transitional period for existing “non-doms”, who have benefited from this status for more than four years and previously relied on the remittance basis for their non-UK income and gains.
Transitional arrangements are to be specified, but would include:
- Reduced amount of foreign income subject to tax
For the 2025/26 tax year only, they would pay tax on 50% of their personal non-UK income. Note that this reduction would not apply to foreign capital gains.
- Capital gains tax rebasing relief
A limited step-up may be claimed for assets held personally. For any capital gains resulting from a disposal of personal assets on or after 6 April 2025 (subject to certain conditions), the acquisition value may be rebased to the value on 6 April 2019 for assets held at that time.
- Temporary Repatriation Facility for two years
They may elect to remit non-UK income and gains that arose prior to 6 April 2025 to the UK at a preferential rate of 12% for the 2025/26 and 2026/27 tax years. Remittances of such non-UK income and gains in subsequent tax years would be taxed at the usual tax rates. The Temporary Repatriation Facility seems to be intended as an incentive for RNDs to bring offshore unremitted income and gains into the UK as soon as possible. The preferential rate would however not apply to income and gains generated within offshore trusts.
Trust protections
The new FIG regime would also have an impact on trusts. The protection from taxation on future income and gains within trust structures (whenever established) would be abolished for all RNDs and deemed domiciled individuals unless they qualify for the FIG regime.
As of 6 April 2025, for qualifying individuals under the FIG regime, non-UK income and gains and certain distributions outside the UK would be entirely exempt during their first four years of UK residency.
For non-qualifying individuals, a transparent taxation would be introduced. Non-UK income and gains arising in non-resident trust structures would thus be taxed on the settlor or transferor if they have been UK resident for more than four tax year, with no further tax on distributions made by the trustees.
Impact on inheritance tax (IHT)
From domicile status to residency-based regime
Currently, an individual’s liability to Inheritance Tax (IHT) depends on their domicile status and the location of the assets in question. The UK intends to shift to a residency-based regime for IHT from 6 April 2025. The design of the system (including consideration of further criteria such as connecting factors other than residence) will be subject to consultation.
10-years “tail provision”
It is envisaged that an individual’s worldwide assets would fall within the scope of UK IHT once such individual has been UK resident for ten years (“residency criterion”) and, once within the scope of UK inheritance tax, would remain as such for ten years after the individual ceases UK residence (“tail provision”).
Impact IHT on Trusts
New trusts and additions to existing trusts made by a RND settlor on or after 6 April 2025 would also be subject to these new residence-based rules.
Current IHT treatment would continue for any non-UK property that is settled on trust prior to 6 April 2025. Therefore, there may be an opportunity for these individuals to create a trust before that date.
Conclusion
Individuals who are planning to move to the UK need to give due consideration in advance to whether they would become UK tax resident and eligible to claim the new FIG regime (and would benefit from doing so). Existing non-doms need to verify whether they would still be eligible for the FIG regime (albeit for a limited period).
In any case, for the aforementioned individuals, it is recommended to timely set up their succession planning, taking into account the standard inheritance tax rate in the UK is 40%.
Individuals thinking about leaving the UK may need to consider choosing a jurisdiction that also applies a flat-rate or similar regime, e.g. Italy, Switzerland, etc. Portugal has now abolished the NHRI - regime (with effect from 1/1/2024 for new arrivals). Countries that do not apply such 'non-dom' regime can also be attractive in certain situations. In this respect, Belgium could certainly be worth considering. Regardless, one should always take into account the application of the double tax treaties and any prior restructuring when emigrating to another country. Factual circumstances should also not be overlooked.
For the aforementioned individuals, it is important to emigrate in time in order to avoid falling within the scope of UK inheritance tax. Indeed, under "the tail provision", a UK resident would remain so for 10 years after emigration.
Although the proposed changes appear to be quite significant, it should be highlighted that this is only a proposal in a UK election year. The big question remains whether and how these proposed changes will be implemented. We will therefore necessarily have to await further details, including draft legislation and guidance to be released to provide specifics on the mechanics of the new regime. Nevertheless, timely advice can already be sought regarding the possible courses of action to follow to anticipate a possible change of law. Tiberghien will gladly assist you with all your questions, not only about a possible emigration to Belgium, but also to other countries.
For any further questions or assistance, please do not hesitate to contact your trusted Tiberghien advisor.
This newsflash is for information purposes only and should not be relied upon as legal advice.
