All good things come to an end … of the remittance basis for UK non-domiciled residents
Philippe Pescayre & William Mathiotte
The remittance basis could eventually come to an end according to Jeremy Hunt, the Chancellor of the (British) Exchequer who announced the abolition of this highly disputed regime for future income and gains arising after April 6th, 2025.
A new regime seen as simpler and more attractive than the current approach will be adopted. The individuals will be able to bring their foreign income and gains into the UK without attracting any tax charge, encouraging them to spend and invest these funds in the UK.
- The remittance basis is a tax treatment that is available to individuals who are resident but not domiciled in the UK. Thus, they are liable to UK tax on their UK source income and gains and on any remittances (amounts) of foreign income and gains that they remit to the UK (i.e. brought to, or received in, or used in the UK).
The remittance basis is free of charge the first 6 years. Indeed, there is a remittance basis charge of:
- £30,000 for non-domiciled individuals who have been resident in the UK for at least 7 of the previous 9 tax years;
- £60,000 for non-domiciled individuals who have been resident in the UK for at least 12 of the previous 14 tax years.
- The “New Four-Year Foreign Income and Gains (FIG) Regime” will replace the current remittance basis regime with effect from April 6th, 2025.
According to the “4-year FIG regime”, individuals will not pay any UK tax on foreign income and gains arising in the first 4-years of tax residency in the UK and can freely bring such income into the UK.
To be eligible, individuals must not have been UK tax residents during the 10 tax years preceding the 4-year period.
After the 4-year period, individuals will be liable to UK tax on their worldwide income (i.e. on any newly arising foreign income and gains).
- The UK Government announced transitional arrangements for existing “non-domiciled residents”. There will be:
- a temporary 50% reduction in the personal foreign income subject to tax in 2025-26 for non-domiciled individuals who will lose access to the remittance basis on April 6th, 2025 and are not eligible for the new 4-year FIG exemption regime;
- re-basing of capital assets to April 5th, 2019 levels for disposals that take place after April 6th, 2025 for current non-domiciled individuals who have claimed the remittance basis. This means that when foreign assets are disposed of, affected individuals can choose to be taxed only on capital gains from that date;
- non-domiciled residents will be able to remit foreign income and gains that arose before April 6th, 2025 to the UK at a rate of 12% under a new Temporary Repatriation Facility in the tax years 2025-26 and 2026-27.
- While the government is removing protections on non-resident trusts for all new FIG that arise within them after April 6th, 2025, FIG that arose in protected non-resident trusts before April 6th, 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than 4 years.
- We should also see changes regarding the inheritance tax since the exposure should thus be determined by reference to the concept of residence rather than of domicile.
Finally, the precise scope of these modifications remains uncertain (especially if the Labour wins the next election).
The new FIG regime might significantly impact the taxation of individuals moving to and from the UK.
We are now awaiting more clarity.