COMPLIANCE
Employers and internationally mobile employees –– the impact of non-dom changes
Charlotte Hobrough, expatriate tax director, and David Yewdall, expatriate tax partner; BDO , answer some of the burning questions around the non-dom changes announced at the spring budget 2024 by chancellor, Jeremy Hunt A fter much speculation, the chancellor announced the abolition of the current ‘non-dom’ for each tax year, and that split year and treaty residence years will be ignored.
years prior to establishing UK tax residency l internationally mobile employees (IMEs) will be able to elect into the FIG regime on a year-by-year basis, but will lose their personal allowance and annual exemption (capital gains tax) l in contrast to the ‘non-dom’ regime, under the FIG regime, the foreign income and gains can be brought to the UK tax-free l transitional rules will apply during the 2025/26 and 2026/27 UK tax years l IMEs will be able to remit pre-6 April 2025 (untaxed) foreign income and gains, and only be liable to a 12% tax rate during the 2025/26 and 2026/27 UK tax years. What’s happening to the non- dom regime and what’s being introduced to replace it? The sun will set on the current ‘non-dom’ regime on 5 April 2025. It will be replaced on 6 April 2025 by the FIG regime, which will still allow IMEs crucial access to valuable expatriate tax concessions. IMEs who qualify for the FIG regime won’t pay tax on foreign income and gains arising in the first four tax years after becoming UK tax residents and will be able to bring these funds to the UK tax free. They will pay tax on UK income and gains from the first year of UK residence. After the four-year FIG regime, the individual will be taxed on worldwide income and gains. Who will be eligible for the FIG regime? To be eligible for the FIG regime, an individual must have been a non-UK tax resident for a period of ten years. Current guidance states that the statutory residence test will be used to determine tax residence
The FIG regime will apply equally to employees who were born in the UK, and those who consider the UK as their permanent home but have been absent from the UK for ten tax years or more, as it does to employees who come to the UK for the first time. How will a claim for the FIG regime be made? IMEs will need to make a claim to use the new FIG regime. They will be able to choose which year(s) they claim for and won’t need to claim for every year if this isn’t beneficial. The guidance doesn’t state how the claim is made but presumably this is done via the tax return, like the remittance basis is claimed at present. What does this mean for IMEs present in the UK prior to 6 April 2025? IMEs who, on 6 April 2025, have been tax resident in the UK for less than four tax years (after a period of ten years of non-UK tax residence) will be able to use the FIG regime for any remainder of the four-year FIG regime term. This means employees can potentially still access the FIG regime even if they arrived pre-6 April 2025, if they were non-UK resident for ten years before arriving in the UK. IMEs who are eligible for OWR in 2023/24 will still be able to claim OWR for the full three tax years even if they’re not eligible for the FIG regime in 2025/26. However, those arriving in 2025/26 won’t be able to claim OWR if they’re not eligible for the FIG regime.
(remittance basis) tax regime in the spring budget held on 6 March – a change many employers will have to grapple with for years to come. The term ‘non-doms’ generally refers to individuals born overseas who don’t consider the UK to be their permanent home (not domiciled in the UK). Favourable tax treatment of foreign income and gains has been available to these individuals, subject to tax levies of varying amounts after seven years of UK tax residency, which eventually cease to apply after 15 years of UK tax residency. Foreign income and gains haven’t been subject to UK tax on the proviso that they were retained by the non-doms outside and not remitted to the UK. Our comments below are based on information made available on budget day so shouldn’t be viewed as exhaustive. There will, no doubt, be much to absorb from the final legislation. However, we hope the questions answered below will give you a head start in getting to grips with the changes. The highlights l the chancellor announced the abolition of the ‘non-dom’ regime from 6 April 2025, and its replacement by the foreign income and gains (FIG) regime l the FIG regime will allow foreign income and gains to be treated as outside the scope of UK taxation for four tax years, with overseas workdays relief (OWR) remaining restricted to three UK tax years l eligibility for the FIG regime will be based on non-UK tax residence in the ten UK tax
| Professional in Payroll, Pensions and Reward | May 2024 | Issue 100 20
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