On Monday (29 July 2024), the new Chancellor of the Exchequer, Rachel Reeves, gave a statement to the House of Commons, setting out the state of the public finances and confirming that some “difficult decisions” would need to be made. 

Full details of those difficult decisions will be announced at the Chancellor’s first Budget, now confirmed for 30 October 2024. However, in a policy paper accompanying the Chancellor’s statement, some further information was provided on the proposed changes to the taxation of UK resident non-UK domiciled individuals (RNDs) (papers were also published about the Government’s carried interest reforms and VAT on school fees).

Key points to note from the policy paper are as follows.

• Broadly speaking, the new Labour Government remains committed to implementing the changes originally announced by the previous Conservative Government in March 2024 (that is, the replacement of the existing “non-dom” regime with a new four-year residence-based regime with effect from 6 April 2025). However, as previously indicated by the Labour Party in the months leading up to the recent general election, certain aspects of these proposals (relating to the transitional arrangements for existing RNDs and the inheritance tax treatment of trusts) are viewed as being overly generous.
   
• In particular, the proposal to give existing RNDs (who will lose access to the remittance basis of taxation on 6 April 2025) a 50% reduction in foreign income subject to tax for the 2025-26 tax year, is to be scrapped. However, other transitional arrangements proposed by the previous Government – (i) an opportunity for RNDs to remit foreign income and gains that arose before 6 April 2025 to the UK at a reduced tax rate under a “Temporary Repatriation Facility” (TRF), and (ii) the rebasing of non-UK assets held by current RNDs – will be adopted by the new Government. Indeed, there is a possibility that certain aspects of these transitional arrangements will be more generous than previously expected. The policy paper states that “the rate and the length of time that the TRF will be available will be set to make use as attractive as possible. The Government is also exploring ways to expand the scope of the TRF, including to stockpiled income and gains within overseas structures, and will confirm further details at the Budget.” Under the previous Government’s plans, the TRF was to be available for two years at a tax rate of 12%, and it was not to apply to foreign income and gains generated within trust structures; however, the statements in the policy paper published on Monday suggest that the new Government may be prepared to implement a more generous scheme to encourage former RNDs to bring their foreign income and gains to the UK. In respect of the rebasing relief, the rebasing date proposed by the previous Government was 5 April 2019 – it is unclear why this date was selected; however, the policy paper published on Monday states that “the Government is considering the appropriate rebasing date and will set this out at the Budget”. RNDs will therefore need to wait until the Budget on 30 October to discover whether any alternative rebasing date which is selected will be more beneficial.
   
• In respect of inheritance tax, it was confirmed that with effect from 6 April 2025 this will be moving from a domicile-based tax to a residence-based tax. This will have consequences for long-term UK resident settlors and their trusts. The previous Government had promised that the treatment of non-UK assets held in trusts which were established by RNDs prior to 6 April 2025 would not change, meaning that such assets would remain outside the scope of UK inheritance tax. However, the Labour Party confirmed in their election manifesto that “we will end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here”. The policy paper published on Monday reiterates that “the Government will end the use of Excluded Property Trusts to keep assets out of the scope of IHT”. However, it also notes that “the Government recognises that trusts will already have been established and structured to reflect the current rules, so [the Government] is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements…”. RNDs may well be encouraged by this suggestion that transitional arrangements will be introduced to assist individuals who have previously established trust structures in reliance on the existing rules.  
   
• The previous Government had committed to holding a formal consultation on the inheritance tax proposals; however, this idea has been abandoned by the new Government; instead, it intends to “review stakeholder feedback provided following the Spring Budget” and “carry out further external engagement…on IHT policy design” over the summer (further details of which have since been published by the Government). More generally, the Government “wants to ensure that interested parties have an opportunity to share views and feedback on the detail of legislative provisions”.  However, it is unclear whether this means before or after draft legislation is published around the Budget on 30 October.
   
• Finally, the policy paper announces the Government’s intention to conduct a review of the UK’s “offshore anti-avoidance legislation”, which includes the Transfer of Assets Abroad regime and the Settlements Code, “to modernise the rules and ensure they are fit for purpose”. This was unexpected and may well prove to be as significant for taxpayers with complex international affairs as the current proposed reforms. Given the key importance of the motive defences for many taxpayers in terms of their decision making as to whether to stay in the UK, whilst simplification and clarity may be welcome, further uncertainty may not be. The Government has stated that any changes are unlikely to come into force before 6 April 2026.  

Overall, the policy paper emphasises that the Government wishes to ensure that any new regime is “internationally competitive and focused on attracting the best talent and investment to the UK”. Some taxpayers may still conclude that the direction of travel is sufficiently clear to continue with their plans to leave the UK. Others will need to wait until the Budget on 30 October to discover what some of the more encouraging statements in the policy paper will mean for them in practice.

Visit our UK non-dom reforms hub page for more information and analysis of the announcements relating to the reforms as they develop.