What is the non-dom regime and how is it changing

The UK’s current non-dom regime is a favorable tax regime which allows non-UK domiciled individuals (non-doms) who are UK resident to opt to use the remittance basis of taxation. This means that whilst they pay tax on their UK income and gains in the same way as UK domiciles, they pay tax on their foreign income or gains (FIG) only when they are remitted, or brought to, the UK. From April 2025, the UK government is introducing a new residence-based regime which will abolish the remittance basis of taxation.

 

For new arrivals, who have a period of 10 years consecutive non-residence, there will be full tax relief for a 4-year period of subsequent UK tax residence on FIG arising during this 4-year period, during which time this money can be brought to the UK without an additional tax charge. Existing tax residents, who have been tax resident for fewer than 4 tax years and are eligible for the scheme, will also benefit from the relief until the end of their 4th year of tax residence.

 

The transition period

There will be targeted transitional arrangements for existing non doms. These include a temporary 50% reduction in the personal foreign income subject to tax in 2025-26 for non-doms who will lose access to the remittance basis on 6 April 2025 and are not eligible for the new 4-year FIG exemption regime.

 

A re-basing of capital assets to 5 April 2019 levels for disposals that take place after 6 April 2025 for current non-doms who have claimed the remittance basis. This means that when foreign assets are disposed of, affected individuals can elect to be taxed only on capital gains since that date. For non-doms who hold assets outside the UK that are difficult to value, they should consider starting the process of getting valuations of these foreign assets from 5^th April 2019 to benefit from the rebasing of capital gains.

 

Non-doms will be able to remit foreign income and gains that arose before 6 April 2025 to the UK at a rate of 12% under a new Temporary Repatriation Facility in the tax years 2025-26 and 2026-27.

 

The impact on investments held in US brokerage accounts

Many funds held in US taxable brokerage accounts are not UK tax reporting, which means they are taxed at income tax rates as opposed to capital gains tax rates. The latter typically being lower. Those in the UK who previously claimed the remittance basis were able to defer dealing with the issue of non-UK reporting funds for as long as they were able to maintain that status. The non-dom changes that have been announced will bring that date forward for many people. The target date to get everything resolved will depend on an individual’s circumstances and whether they intend to utilize one of the transitional arrangements. Failing to meet that date could result in paying UK tax on the gains at a rate of up to 45%. Planning in advance and moving into investments that are taxed at UK capital gains rates will result in a rate of tax up to 20%. CBFP USA specializes in creating cross-border investment strategies which avoid the inefficiencies of non-UK tax reporting funds, and the often-worse situation of investing in Passive Foreign Investment Companies (PFIC’s).

 

If you would like to find out more about how we can help, please email Edward Cole at ecole@cbfpusa.com.

 

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Information contained herein does not involve the rendering of personalized investment advice but is limited to the dissemination of general information. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Any mention of a particular security or type of security is not a recommendation to buy or sell that security. Investing involves risks including the possible loss of capital. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. Cross Border Financial Planning USA are not tax or legal advisors, and you should discuss any tax or legal matters with the appropriate tax or legal professional.