Transitional Reliefs on end of Non-dom Regime

As part of the 2024 Spring Budget announcements the Chancellor announced a new Temporary Repatriation Facility (‘TRF’) as one of the transitional measures accompanying the abolition of the non-dom regime. Under the TRF, those who have previously elected to be taxed on the Remittance Basis will be able to bring previously unremitted income and gains into the UK at a favourable rate of tax.

What is the Temporary Repatriation Facility?

One of the primary criticisms of the current non-dom regime is that the Remittance Basis effectively encourages users to keep their wealth outside of the UK. This is at odds with the overriding objective of making the UK an attractive place for wealthy individuals to invest and do business so the Government is keen to remove barriers to people bringing their funds to the UK.

Accordingly, as part of the non-dom shake-up the Chancellor proposed the TRF which will enable former Remittance Basis users to bring funds into the UK at a reduced rate of tax during the 2025/26 and 2026/27 tax years. This rate is proposed to be 12% – compared to current rates of up to 45% (or 48% for Scottish taxpayers) – which will be very tempting for those frustrated by the current restrictions on using their funds.

There has been no detail on how the TRF would work beyond the initial comment that there will be a relaxation of the mixed fund ordering rules for the purposes of the funds remitted. This suggests that there might be some form of nomination arrangement but it remains to be seen how this will be implemented and what will become of any funds that do remain offshore. Many non-doms will be familiar with the onerous administrative and reporting obligations that come with the management of multiple offshore accounts – whilst this enables the identification and efficient remittance of offshore income and gains there is a hope that the Government will use this opportunity to simplify the rules and remove the requirement to segregate different types of income and gains.

After the TRF period is over (i.e. from 6 April 2027) the remittance of any remaining pre-6 April 2025 foreign income and gains (FIG) will be taxed at normal tax rates.

Other Transitional Measures

The Chancellor also announced that individuals who move from the Remittance Basis after 5 April 2025, and are not eligible for the new four-year FIG regime, will pay income tax on only 50% of their foreign income for the 2025/26 tax year only. This rule will not apply to foreign gains.

Additionally, Capital Gains Tax rebasing will be available for individuals who have previously claimed the Remittance Basis and who are not UK-domiciled or deemed domiciled on 5 April 2025. Where foreign assets are disposed of after this date, these individuals can elect to rebase the assets to the 5 April 2019 value, potentially wiping out some of the capital gain arising. This rebasing will be subject to meeting certain conditions, details of which have not been released yet.

Potential Opportunities

Whilst details on how the TRF will operate are not yet available there are likely to be opportunities for those in a position to benefit from the provisions. These will depend on exactly how the rules are introduced but we’ve identified some areas below where tax planning could prove beneficial.

Claiming the Remittance Basis – for non-doms who have not previously claimed the Remittance Basis, they will want to consider whether to do so for the 2023/24 or 2024/25 tax year in order to have access to the TRF.
Review Earlier Years – it might also be worthwhile reviewing earlier tax years to establish whether a remittance basis claim would now be advantageous given the potential benefit available under the TRF.
Delay Remittances – for those who have previously claimed the Remittance Basis and intend to bring funds into the UK, they might want to delay these transfers until after 5 April 2025 in order to be taxed under the new regime.
Accelerate Offshore Receipts – some non-doms may be in a position to influence the timing of the receipt of foreign income and gains. This might result in being able to benefit more from the 12% tax rate, although consideration should be given to any overseas tax consequences.
Possible use of Foreign Tax Credit Relief – depending on how the rules are introduced, it might be possible to further reduce the effective tax rate through claiming relief for overseas tax. This could influence the source of funds remitted, or nominated to be remitted, to the UK.
Using Trusts…? – whilst we are informed that the TRF will not be available to foreign income and gains generated within trusts, it is not clear whether this will continue to apply once these funds have been distributed from trust. Careful consideration of the rules will be needed to determine whether this presents a further planning opportunity.
There may be further opportunities for individuals who have mixed funds.

What next…?

Labour’s early response to the proposals suggested that if they came to power we might expect the introduction of the TRF and the Capital Gains Tax rebasing proposals. They stated that they would not introduce the 50% income tax for 2025/26 proposal but, overall, non-doms could expect to see the key transitional reliefs introduced.

However, with the General Election now set for 4 July it is likely to be some months before we have any further details on the new rules and non-doms will be unable to make firm plans for the time being. In the meantime, the professional bodies and interested firms have been providing feedback on how the proposals might be implemented and with a consultation on the reform of the inheritance tax regime promised, we hope this will ultimately result in a well thought through and pragmatic regime.