Monday 29 July was, ostensibly, “Legislation Day”. To be fair to the government, some legislation was produced, including draft provisions to be included in Finance Bill 2025. However, those of us waiting with bated breath for draft legislation on the proposed changes to the non-dom regime will have to bide our time a little longer and content ourselves with the policy paper which was published on the same day.

The continuing uncertainty remains a real source of frustration for non-doms and their advisors alike; these are often individuals with complex financial affairs and bespoke advice will be needed. Without certainty around the measures which will be introduced, it is impossible to advise non-doms on what to do, although I have written previously about the dangers of failing to do all they can during this waiting period to put themselves in the best position possible to act once the detail is confirmed.

Although the policy paper leaves a lot of unknowns, there are a number of things it does confirm and others it hints at.

Timeline and process

• The Chancellor of the Exchequer will present a Budget to the House of Commons on 30 October. We have been promised further detail about the changes at this time – is it too much to hope for draft legislation, too?
• The proposed changes will definitely come into effect from 6 April 2025. This is as we expected but means a maximum time frame of just over five months (assuming draft legislation is published on Budget Day) between advisers being given some concrete idea of the framework of the new rules and their implementation. This is not a lot of time!
• The new government will not, as the previous government had indicated it would, undertake a formal consultation on the proposed IHT changes (see below) but will instead engage in stakeholder listening. This move away from formal consultation is disappointing. I am concerned that, as a result, there is a higher chance that the legislation will be problematic, and the policy measures will not have regard to the anticipated behavioural impact they will have on non-doms (and therefore are unlikely to bring in the sorts of revenues indicated by the economic modelling).

Changes to the remittance basis of taxation for non-doms

• The new system will be broadly as we expected it to be (i.e., that announced by former Chancellor Jeremy Hunt in his March 2024 Budget, with many of the additional tweaks Labour spoke about subsequently and during the election campaign). 
• The remittance basis of taxation will be abolished going forward and replaced with a residence-based regime. There will be 100% relief on all Foreign Income and Gains (FIG) arising during the first four years of tax residence after arrival in the UK (as long as an individual has not been UK tax resident in any of the previous 10 tax years).
• The Conservative proposal of a 50% reduction in the tax rate applicable to foreign income for individuals who were already on the remittance basis, but who lose access to it in the first year of the new regime, will not be introduced. We knew that Labour were not in favour of this policy, but nevertheless this will be a blow to those who would have benefitted from it and have been in the UK too long to benefit from the four year FIG relief. However, two other transitional measures have been confirmed:
  • Current and previous remittance basis users who are not eligible for the four-year FIG regime will be able to rebase foreign capital assets when they dispose of them (with the aim of increasing their base value and therefore reducing the gain on which they have to pay UK capital gains tax). The rebasing date (previously suggested as 5 April 2019) will now be confirmed at the Budget, but there may be an opportunity for those who will not qualify for the FIG regime but who have not so far claimed the remittance basis to do so in this tax year in order to benefit from this transitional arrangement.
  • The proposed Temporary Repatriation Facility (TRF) has been confirmed, in order to encourage individuals already in the UK who were previously on the remittance basis to bring pre-2025 non-UK income and gains into the country at a lower tax rate.  However, we don’t yet know what the rate of tax will be, or for how long it will be made available. Moving in a rare positive direction for non-doms, there is some indication that the TRF could apply not just to personally held income and gains, but potentially also to those held within offshore structures, including trusts.
• In general, however, non-UK settlor-interested trusts will no longer provide protection from income tax and capital gains tax for individuals who are subject to UK taxation under the new regime and do not qualify for the FIG regime. 

Wider related changes

• Going forward, residence - not domicile - will be the determining factor when assessing liability to UK inheritance tax. The “basic” test is “envisage[d]” to be 10 years of residence in the UK, with a ten-year tail for those leaving the UK. The wording of the policy paper, which refers to engagement with stakeholders in order to fully consider any refinements, indicates this may not be the end of the story – certainly, there was originally a suggestion that more than pure residence would be brought into account. While bad news for non-doms who would like to stay in the UK on a medium- or long-term basis, there will be many long-term UK expats around the world who maintain strong links to the UK and may still be UK domiciled who will be delighted by these proposals.
• The paper reconfirms Labour’s commitment to abolishing the use of excluded property trusts to keep assets out of the UK inheritance tax net. Again, this is entirely expected although, in conjunction with the changes to the assessment system for inheritance tax, is likely to be the most problematic for those hoping to spend a longer period of time in the UK. However, there may be some good news for those with excluded property trusts which were set up under the current rules. The paper states that the government is “considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements”. It is unclear exactly what this could mean, but it opens the door for some form of grandfathering, or the possibility of collapsing such trust structures without incurring the normal tax liabilities. As more than just inheritance tax would be at play, this could be difficult to achieve but again we should know more on 30 October.
• One new announcement is a review of offshore anti-avoidance legislation. While few would argue with the stated aim to “modernise the rules and ensure they are fit for purpose”, given how complex they are currently, fixing them will be a Herculean task. This may be why the changes will not be introduced before 5 April 2026.

We inch closer to a level of knowledge on which non-doms and their advisers will finally be able to act. In the meantime, we can but reiterate the message that preparation during the next few months is key.