Labour announces further changes for non-dom rules

There were suggestions that any changes made to the regime may take effect from the Budget date (30 October) but recently released policy papers have confirmed the effective date for the changes will be 6 April 2025.  

Although this now gives those affected time to plan and structure their affairs ahead of 6 April 2025, in reality, there will be a short window to execute any changes as we still await several revised proposals which we expect will be announced on 30 October.

Below we detail the main points from the recent policy paper

The four-year FIG regime

The four-year FIG regime remains unchanged from the previous proposals.  This regime will be available to individuals in their first four years of residency, who haven’t been UK resident in any of the previous ten years and will provide 100% relief from UK tax on foreign income and gains that arise after 6 April 2025 until the four year period ends for each tax payer.  

Transitional arrangements

The previous Conservative Government proposed a 50% reduction on foreign income for individuals who are currently non-UK domiciled and who were claiming to be taxed under the remittance basis. The new Labour Government will not be implementing this proposal.

The previous Conservative Government also announced that foreign assets would be rebased to their 5 April 2019 value as part of the transitional provisions.  The new Labour Government agree with this proposal although they are currently considering the appropriate rebasing date; we expect this to be confirmed on 30 October.

The Temporary Repatriation Facility (TRF) was due to be introduced, which would tax remittances made in 2025/26 and 2026/27 at a reduced rate of 12%. We await further details in the Budget as to the rate and the length of time that the TRF will be available.  Labour is also considering how they can extend the TRF to stockpiled income and gains within Offshore Trusts, which will be a welcome proposal and one that wasn’t included in the original announcements.

Inheritance Tax (IHT)

In line with previous proposals, the UK’s IHT regime will move to a residence-based system.  As a reminder, individuals who have been resident in the UK for ten years or more will be subject to UK IHT on their worldwide assets and will remain subject to UK IHT for a further ten years after leaving the UK.

Labour has said they will end the use of Excluded Property Trusts but recognise there are already Trusts in existence which were created under current IHT rules.  This suggests there will be some form of transitional provisions but the policy wording suggests existing Trusts won’t be grandfathered, with more details to be announced on 30 October.

To summarise

• The FIG regime remains unchanged
• Labour will not implement a 50% reduction on foreign income for individuals who are not non-dom and currently subject to the remittance basis
• Labour will introduce a rebased date for foreign assets as part of transitional provisions, this will be announced on 30 October
• Labour will announce plans for TRF on 30 October including how this will extend to Offshore Trusts
• Labour will end the use of Excluded Property Trusts, more details will be announced on 30 October

What to do and when?

Overall, this gives us some clarity on the direction of travel.  Those who were considering when and whether to crystallise non-UK income and gains this tax year or next, whether to claim the remittance basis this year and the timing of those remittances can in many cases confirm their plans even if they prudently wait until after 30 October to execute. 

Those with non-UK Trust structures will need to wait until after the 30 October to finalise plans and execute any changes.  In reality that will give them a short window to build that strategy and execute any changes so the advice would be to get ahead and review current structures, their purposes and how they should be used moving forward so that action can be taken swiftly once we know more.

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