Summary of UK Budget announcement on non-domicile regime changes

This announcement affects UK tax treatment of non-domiciled individuals (non-UK domiciled) who are resident in the UK. Here's a breakdown of the key changes:

Summary of changes

1. Current remittance basis ending

   The existing remittance basis for income tax and Capital Gains Tax will be abolished for non-domiciled UK residents from 6 April 2025.

2. New regime for non-domiciled individuals

   A new four-year foreign income and gains (FIG) regime will be introduced from 6 April 2025.

   • Individuals who become UK tax resident after a period of 10 years of non-UK residence can benefit.
   • They will not pay UK tax on foreign income and gains arising in the first four years of UK tax residence (if they claim the regime).
   • They can bring these funds into the UK without further tax charges.

3. Impact on offshore trusts

   From 6 April 2025, certain protections from taxation on future income and gains arising within trust structures will be lost for non-domiciled individuals who don't qualify for the four-year FIG regime.

   Distributions from non-resident trusts made after 6 April 2025, will be taxed in the UK after the four-year period.

4. Inheritance tax (future consultation)

   The government intends to move inheritance tax from a domicile-based regime to a residence-based regime, but this is subject to consultation and would only apply from 6 April 2025 onwards.

5. Other changes

   • A temporary reduction in foreign income tax will be available for individuals moving from the remittance basis to the arising basis in 2025-2026 (only if they don't qualify for the new four-year FIG regime).
   • Individuals who have been taxed on a remittance basis can elect for a rebasing of Capital Gains Tax on disposal of certain assets held personally.
   • A new Temporary Repatriation Facility (TRF) will allow a reduced tax rate of 12% on remittances of pre-6 April 2025 foreign income and gains under specific conditions.

See also: Taxation in the UK: Our guide to tax residency and domiciled status

Planning opportunities for South Africans

The move to abolish the remittance basis of taxation is a welcome one in our opinion.

Not only will this allow you to freely remit income and gains from SA with no further taxation in the UK, but also result in a case of double non-taxation on such income. (Items of income such as interest, income from employment related pension funds and capital gains are normally taxable in the UK only, and SA has no taxing rights). This in itself is not unusual as income from employment-related pension funds from the UK is not taxed in SA either, even though SARS has the taxing rights.

The move also allows emigrating SA residents to avoid the double tax trap on exit. At present, when you become non-resident for taxation in SA, you face the exit-tax on the deemed disposal of your worldwide assets. If you did not make an actual disposal, and sold the asset(s) three years later, for example, you will not face CGT in the UK again in such disposal (nor in SA). This allows you a period of four years to unwind and sell any assets caught by the deemed disposal rules.

How the changes relate to South African trusts

Distributions of income and gains from SA trusts will not be taxed in the UK. However, such distributions will still be taxed in SA at the trust tax rates. In essence, there will be no changes here, as one can apply the existing rules to avoid further taxation in the UK in any event.

Distributions from offshore trusts will likewise not be taxable in the initial four-year period. However, post this period, these would become taxable. Using careful planning, one would nevertheless be able to avoid the imposition of the matching rules as it applies to non-resident trusts, and still receive tax advantaged income from such trusts, and further avoid the stockpiled gains problems.

IHT and trusts – the position for trusts set up properly prior to April 2025 will remain unchanged, and these trusts will not be subject to IHT at any point. The proposal is that trusts formed after that will trigger IHT as per the normal trust rules which may have anniversary and exit charges within the residence and tail periods. Again, with careful planning this may be avoided by using the relevant treaty provisions.

Inheritance tax

From an inheritance tax perspective, the position of individually held assets are unclear at this stage, and one would need to consider the further drafts. It does appear that the deemed domicile rules will be modified to shorten the period of residence before triggering domiciled status, and perhaps a longer ‘’tail’’ of retaining that status once you’ve left the UK. The one big problem (or advantage to a South African) is that the UK has a couple of IHT treaties, of which SA is one, which will override the domestic law, unless the treaty itself is modified.

Please note: This is a simplified summary, and you should consult a tax professional for detailed advice on your specific situation. For more technical details, please consult the UK government website. 

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Let our experienced financial planners guide you through these turbulent times and light the way to a secure and certain future. Get in touch with our Wealth team by calling us on +44 (0) 20 7759 7519 (UK) or +27 (0) 21 657 154 (SA) or emailing wealth@sableinternational.com or email me directly niel.pretorius@sableinternational.com