What does the abolition of the non-dom regime mean for me, my family and our structures

Those taxpayers formerly known as ‘non-doms’ are the most immediately impacted by the Budget with the biggest question being whether to go or to stay in the UK when the non-dom regime comes to an end from 5 April 2025. A second category of persons who have also been impacted by these changes are those formerly UK domiciled persons who may be considering a return to the UK – surprisingly this category of persons could be in a better position than pre-Budget.

What you should consider

If these changes could affect you then your first step is to consider the following:

Residence

Given the changes are now based on residence, rather than the peculiar English concept of domicile, it is crucial to understand whether you are actually resident in the UK under the terms of the Statutory Residence Test (SRT) and when residence commenced. If you are a formerly domiciled resident who is considering a return to the UK, then you may qualify for a more favourable treatment as a “Qualifying New Resident”. Under the SRT you do not have to cut all ties with the UK to break tax residence so leaving and never returning is far from your only option.

Current planning

There will be some beneficial treatment for existing structures, so reviewing these is important. What plan do you have in place currently, is this fit for purpose given the proposed changes in April and generally with your family? Do you still need historic trusts/structures established when the family was young. Is there any benefit in maintaining an off-shore structure if all the beneficiaries are firmly established in the UK never mind if you the settlor are considering relocation?

Transitional reliefs

Whether you are soon to be classified as a “Long-term Resident” or a “Qualifying New Resident”, there are reliefs available and steps that can be taken before the changes are implemented in April. Can you make use of the last days of the Remittance Basis? What is the Temporary Repatriation Facility (TRF) and how can Foreign Income and Gains (FIG) be brought into the UK? Practically, might this be a more user-friendly system than the Remittance Basis?

UK inheritance tax

If you are concerned about UK inheritance tax applying on your worldwide estate, should you remain in the UK beyond the new 10 year period, or you have already passed this threshold, then now is the time to take advice. Keep in mind that inheritance tax may not only apply on death but also under the Relevant Property Regime if the settlor of any structure is long term resident and benefits or retains control. This is a potential trap for double taxation to inheritance tax.

To stay or to go

Might now be the time to consider ceasing to be UK resident for tax purposes for a more favourable tax jurisdiction? If you are considering a move, then it is crucial to look carefully at where to go, not only for tax purposes but for lifestyle choices as well. For example, private health care can be a significant unexpected cost, so too property owning taxes.

Even if you are not a non-dom the new rules mean that you can leave the UK, still spend time here and provided you are not resident for tax purposes remove yourself from from the scope of inheritance tax on assets you take offshore.

Practical points to keep in mind

Double tax treaties: if you are Non-Dom who is a national of another country with which the UK has a double tax treaty for income and gains or inheritance tax (like the U.S.) then some of the changes may not affect you or your family.

If there is not a double tax treaty in place with your particular jurisdiction unilateral relief may still apply for inheritance tax purposes.

Finally, please note that the legislation is currently in draft and further changes may still be announced before 6 April 2025.

Contact our private wealth team for more help and advice by emailing [email protected]