I hope that you found my first blog interesting.
In this second blog on the changes for non-doms, I am looking at the changes that came into effect from 6 April 2025 for income and capital gains tax.
If you read my first blog you will be aware that with effect from 6 April 2025 the concept of domicile has been replaced with a residency-based system of determining how someone is taxed.
For income tax and capital gains tax purposes, from this date there will be two new regimes – the Foreign Income and Gains regime (FIG) and Temporary Repatriation Facility (TRF).
The rules under the FIG regime are quite complex but the basic premise is that if you become a UK resident after having been non-resident for 10 years, there will be no tax charge on your overseas income and gains for the first 4 tax years that you are UK resident.
But what does this actually mean? It means you can bring overseas income and gains into the UK during this period with no charge to tax. However, if you choose this basis of taxation then you will lose the tax-free personal allowance and capital gains tax annual exemption. If you have been resident in the UK for less than 4 tax years on 6 April 2025, then you will be able to use the FIG regime for the remaining tax years within this 4-year period.
Under the TRF if you were subject to the remittance basis under the old rules and are resident in the UK, there is the opportunity to pay a charge on your overseas income now, meaning you can then bring this income into the UK in the future free from any further tax charges.
This facility is available for 3 years until 5 April 2028. The charge will be 12% on income nominated by 5 April 2027, and 15% if made by 5 April 2028.
To be able to use this facility you must have been subject to the remittance basis for at least one year prior to 6 April 2025.
This is an ideal opportunity for individuals to be able to bring funds into the UK at a relatively low tax rate either now or in the future. This will be beneficial for those where there was an intention to bring the funds into the UK at some point.
In certain situations, there is also the opportunity to elect to rebase overseas assets to their value at 5 April 2017 for capital gains tax purposes. This means that you will only pay capital gains tax on any increase in value since 5 April 2017. There are conditions that have to be met for this election to be available.
Finally, for those previously subject to the remittance basis that do not qualify for the FIG regime, only 50% of the foreign income arising in 2025-2026 will be charged to tax in the UK. This relaxation does not apply to capital gains.
As can be seen from the above, the rules are quite complex, and it is recommended that anyone affected by these changes seeks professional advice to make sure opportunities to reduce the tax payable on overseas income and gains is not missed.