The government plans to move to a residence-based regime for inheritance tax (IHT) as part of its non-dom reforms.
In a bid to create a “fair and sustainable” tax system the government said it will consult in ‘due course’ on the best way to achieve moving across to this residence-based regime.
This included consulting on a 10-year exemption period for new arrivals and a 10-year ‘tail-provision’ for those who leave the UK and become non-resident.
The government confirmed no changes to IHT will take effect before April 6 2024.
This is part of chancellor Jeremy Hunt’s plans to abolish non-uk domicile tax rules and replace it with a residence-based regime.
The new measure abolishes the remittance basis of taxation for non-doms and according to the government replaces it with a “simpler” one.
From April 6 2025 new arrivals into the UK will not be required to pay any tax on foreign income and gains in the first four years of their UK residency.
After four years those who continue to live in the UK will pay the same tax as other UK residents.
The government plans to introduce the following transitional arrangements for existing non-doms claiming remittance basis:
- an option to rebase the value of capital assets to April 5 2019
- a temporary 50 per cent exemption for the taxation of foreign income for the first year of the new regime (2025-26)
- a two-year ‘temporary repatriation facility’ to bring previously accrued foreign income and gains into the UK at a 12 per cent rate of tax.
Overseas Workday Relief
The Overseas Workday Relief will also be reformed with eligible employees being able to claim OWR for the first three years of tax residence.
They will benefit from income tax relief on earnings for employment duties carried out overseas but with current restrictions on remitting these earnings removed.
Details on eligibility criteria will be set out in ‘due course’ following engagement with stakeholders, the government has said.
Mohammad Uz-Zaman, founder of ADL Estate Planning said the abolition of non-dom status will be ‘disastrous’.
“Removing the non-dom remittance rules could be a vote winner, to ride nationalistic sentiment, however, I expect it will be disastrous for the UK economy in the longer term. We need to drive growth and we need to encourage talent to come to the UK from the global marketplace.
“The world is becoming increasingly competitive in terms of lifestyle, tax, healthcare and security. Non-doms are generally exceptionally wealthy and internationally mobile. The government is gambling with existing revenue that could easily be lost."
While Basil Dixon, partner at solicitors Payne Hicks Beach said there is “no need to panic” as the new regime presents attractive opportunities for the “well advised client”.
He added: “All of the changes, of course, are subject to the overriding consideration that we are in an election year in the UK, and the incoming government may well have other ideas.
“Our feeling as a firm, however, is that in the current climate, this is unlikely to happen, whatever complexion the new government takes."
GSB Capital partner, Mauro De Santis Bo said: "Wealthy non-doms who have the right level of advice will most likely find different ways to mitigate the impact of the new residency-based system and remain UK residents, but some families will prefer to leave the country and seek a new home that offers better tax treatment.
"It will be interesting to see how this new residency system will play with the current rules for IHT. If no further clarity is given, this change could potentially lead to some inheritance tax headaches for those non-doms living in the UK."
alina.khan@ft.com
