Labour clarify their non-dom proposals (slightly)
29 Jul 2024
3 min read
The new Labour government has published a policy paper clarifying some of its plans for non-doms and their trusts: https://www.gov.uk/government/publications/2024-non-uk-domiciled-individuals-policy-summary/changes-to-the-taxation-of-non-uk-domiciled-individuals
The key points to note from the new paper are set out below and, although we will need to wait for the Budget for much of the detail, there are some very interesting statements.
For context, our summary of the previous announcements can be found here: Labour’s proposals for non-doms and their structures (burges-salmon.com)
Generally:
- 6 April 2025 is still very much the target for when the new rules will become effective.
- There will be no formal consultation on any of the core proposals. Instead, the government says it will be engaging with stakeholders in other ways.
- The Budget will be on 30 October 2024 and more detail will be set out then.
- On the whole, the proposals broadly reflect what had previously been announced but there are some important changes/clarifications.
For individuals:
- The new 4-year FIG regime will be available for up to four tax years (there had been rumours that it could be extended but this paper suggests that will not be the case).
- There will be two transitional rules:
- A form of rebasing for “current and past remittance basis users” to rebase foreign assets to a date which will be confirmed at the Budget (this is a change from the previous government's announcement which proposed a rebasing date of 5 April 2019).
- A Temporary Repatriation Facility (TRF) will become available on 6 April 2025. The rate of tax which will apply to foreign income and gains which are remitted under the TRF, and the length of time for which it is available are to be confirmed but “will be set to make use as attractive as possible”. These are both changes to the previous government's announcements (which had suggested a 12% rate of tax and a TRF lasting two tax years).
- The government has also stated that it is exploring ways to allow the TRF to be used in relation to stockpiled income and gains within “overseas structures” (i.e. trusts and similar structures).
- Individuals will be within the scope of inheritance tax on their worldwide estates once they have been UK tax resident for 10 tax years and there will be provisions “to keep a person in scope for 10 years after leaving the UK”. The details are to be determined following further engagement with stakeholders.
For trusts:
- Protected trust status will be abolished from 6 April 2025.
- This will potentially allow the various anti-avoidance regimes to apply, such that income and gains arising in non-UK resident trusts could become taxable on UK resident settlors unless such settlors can (and do) claim the 4-year FIG regime.
- The government has recognised that these anti-avoidance regimes are complex and often highly uncertain in their application. It intends to modernise them and to “remove ambiguity and uncertainty in the legislation, make the rules simpler to apply in practice”. However, any material changes to these will not come into force until at least 6 April 2026.
- That means that in 2025/26 (at least) the anti-avoidance regimes are likely to apply in their current form (albeit one would expect that existing references to domicile and deemed domicile will need to be replaced).
- The government remains committed to removing inheritance tax protections from trusts. The paper implies that the inheritance tax status of a trust will be linked to the inheritance tax status of the settlor but is vague as to how this will be done.
- It does however suggest that there will be transitional arrangements to allow for “appropriate adjustment of existing trust arrangements”. More details will be published at the Budget.
The government will implement the 4-year foreign income and gains (FIG) regime announced by the previous government at the Spring Budget.