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Emma McDermott explores the consequences of the Chancellor’s Spring Budget 2024 announcement on the abolition of non-domicile status and possible opportunities under the proposed new arrival scheme.

Out with the old non dom rules …

‘Non-dom’ status has been around for a long time. It broadly enables taxpayers who were born overseas and who consider their long-term home to be overseas to exempt foreign income and gains from UK taxation for up to 15 tax years using the remittance basis. This is with the caveat that foreign incomes and gains must be kept offshore.

… in with the new arrival rules

From 2025/26, the remittance basis will be replaced with the ‘new arrival scheme’.

The new arrival scheme will enable taxpayers to exempt foreign incomes and gains from UK taxation for their first four tax years of residence without remittance restrictions, after which they will be liable to pay tax on worldwide incomes and gains.

Importantly, to benefit from the new arrival scheme, taxpayers must demonstrate ten consecutive years of non-residence prior to relocating to the UK.

• If someone has been resident for fewer than four tax years by the time of reaching the 2025/26 tax year, they will be eligible to use the new arrival scheme up to the end of their fourth tax year of residence, subject to demonstrating ten consecutive years of non-residence prior to relocating to the UK.
• Those who have been resident for four years or more by the time of reaching the 2025/26 tax year will be ineligible to use the new arrival scheme. Thus, their worldwide income and gains will be subject to UK taxation, subject to transitional arrangements.

Non Dom transitional arrangements

The proposed effects of the residence-based regime include:

1. A 50% reduction in foreign income subject to taxation in the 2025/26 tax year.
2. Rebasing of foreign assets to 5 April 2019 for disposals that take place from the 2025/26 tax year.
3. A temporary repatriation facility in the 2025/26 and 2026/27 tax years, which will allow taxpayers to remit foreign incomes and gains previously excluded from UK taxation at a flat tax rate of 12%.

At the time of writing, the government has not released exact details on who can benefit from the transitional easements. It is likely that affected individuals will need to demonstrate having been claiming the remittance basis prior to the 2025/26 tax year.  

Potential action points for non doms

Action points to potentially consider include the following:

• If you are a historic remittance basis user who envisions long-term residence in the UK, you  should explore remitting their foreign incomes and gains to the UK using the temporary repatriation facility at a favourable 12% tax rate.
• Non-doms who have not previously claimed the remittance basis may wish to consider claiming the remittance basis in tax years 2023/24 and/or 2024/25 to benefit from the 50% reduction in taxable foreign income and the asset rebasing to increase the base cost of their assets.
• UK nationals residing overseas, upon repatriation, should explore their eligibility for the new arrival scheme.

Conclusion

The changes will largely affect wealthy non-doms who have historically been able to shield their wealth from UK taxation using the remittance basis.

We will likely see an influx of capital brought to the UK in the 2025/26 and 2026/27 tax years, given the generous repatriation facility and a shift towards onshore optimisation planning such as pension contributions and ISA contributions. Overall, the changes should increase tax revenues and boost the amount of capital circulating around the UK economy.

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