Month: April 2024

March 6^th 2024 saw the delivery of the 2024 Spring Budget by Chancellor Jeremy Hunt, who outlined a significant change to the current non-domicile tax status in the UK.

As of 6th April 2025, the non-domicile – or non-dom as it’s affectionately known – tax status will be scrapped and replaced with new rules for those whose permanent home is overseas.

There will be a transitional period where the current rules will be phased out over 2 years, to allow for a softer transition.

Here we take an in-depth look at how the rules are changing.

What is non-dom status?

The non-dom tax regime has formed part of the UK’s tax system in varying capacities since 1799.

Non-dom status can be granted to UK residents whose permanent home remains outside of the UK, allowing them to benefit from the remittance basis which exempts their foreign income and gains (FIG) from UK taxation.

A non-dom is only required to pay tax on money earned in the UK. Any money made outside of the UK is only required to be taxed by the UK government if the money is paid into a UK bank account.

What are the current non-dom rules?

The current rules if you’re non-domiciled means you are not required to pay UK tax on your foreign income or gains if said income is less than £2,000 in the tax year and the money is not transferred into a UK bank account.

If your foreign income exceeds £2,000, you must report foreign income or gains, or any money brought into the UK.

This can be done in two ways. You can either pay UK tax on your earnings or claim the ‘remittance basis’, meaning you only pay UK tax for any income brought into the UK.

If you claim the remittance basis, you lose tax-free allowances for income tax and capital gains tax and must pay an annual charge if you have been a UK resident for a certain period:

If you have been a resident for at least 7 years of the previous 9 tax years the annual charge is £30,000.

If you have been a resident for at least 12 of the previous 14 tax years, the annual charge is £60,000.

The remittance basis is a complicated process which requires help from professional tax advisors and accountants to ensure compliance. Many financial professionals welcome a simpler system for those eligible for the non-dom status.

How are the non-dom rules changing?

As laid out by Chancellor Jeremy Hunt in the 2024 Spring Budget, the non-dom tax regime will be scrapped, being replaced by a new four-year FIG regime.

As of April 2025, those who move to the UK, or return after at least 10 years overseas, will not be required to pay tax on any earnings made outside of the UK for the first four years. However, after that time, they will be subject to the same tax as all UK residents should they continue to live in the UK.

Individuals who currently claim remittance basis in the UK and have been in the UK for less than 4 tax years are also eligible for the new FIG regime for the remainder of the first four years of UK residence.

Those who have already resided in the UK for 4 or more tax years as of April 2025 will be subject to UK taxation on their income no matter where in the world it is earned.

Transitional measures for current non-doms

Due to the stark changes from the current to the incoming FIG regime, the chancellor announced a transitional period with a number of alleviations to make the process smoother for those affected.

Reduced rates subject to tax

For the 2025/26 tax year, those who were previously claiming the remittance basis moving to the arising basis and who are ineligible for the new 4-year FIG regime will be subject to a reduced rate of tax for one year.

For the individuals described above, only 50% of their foreign income in the 2025/26 tax year will be subject to tax. This will only apply for one tax year and is not applicable to foreign chargeable gains.

Capital Gains Tax Rebasing

Individuals who previously claimed the remittance basis and are neither UK domiciled nor deemed domiciled by April 2025 are able to dispose of personally held foreign assets, which they can elect to rebase to its 5th April 2019 value.

The government has explained that rebasing will be subject to a number of conditions, which have not yet been outlined. This relief is only relevant to non-UK situs assets held personally, not those within non-UK resident trusts.

Temporary Repatriation Facility (TRF)

Those who previously claimed the remittance basis will be able to bring income and gains to the UK earned previously to April 2025 during the 2025/26 and 2026/27 tax years at a reduced tax rate of 12%. This is under the Temporary Repatriation Facility, which will not apply to foreign income and gains earned within trusts.

Trust Protections for non-doms

As of April 2025, tax protections on income and gains earned within “settlor-interested” trust structure will not be available for non-domiciled and deemed domiciled individuals who do not qualify for the new FIG regime.

Any foreign income and gains arising in the trust as of April 2025 will be taxed the same as UK domiciles, unless eligible for the new FIG regime.

Inheritance Tax

The chancellor confirmed the government’s plans to move the Inheritance Tax (IHT) to a residence-based scheme during the Spring Budget announcement.

The IHT provisions are subject to government consultation which are likely to apply from 6 April 2025.

The new IHT scheme proposes individuals will be subject to UK IHT on their worldwide assets once they have been a UK resident for 10 tax years. The new scheme also proposes that once an individual meets the above residence terms, they fall within the scope of UK IHT unless they become and remain a non-UK tax resident for a period of 10 years.

Further details concerning IHT will be settled after consultation.

How do I prepare for non-dom being scrapped?

This announcement is one of the biggest changes to how non-UK domiciled individuals are taxed in the UK. More details will be released in advance of April 2025 to allow ample opportunity for those involved to make the necessary preparations.

With a general election looming within the UK, there is a chance further changes may be implemented, especially if a new government comes into power. In the meantime, however, proper planning and preparation are paramount, and we at Shenward recommend consulting early with tax advisors to ensure proper adjustments and considerations are made to your non-UK earnings well in advance of April 2025.

On March 6^th The Chancellor of Exchequer, Jeremey Hunt, delivered the Spring Budget 2024 to Parliament, outlining what changes we can expect to see over the coming months from a financial point of view.

Whilst a number of changes were announced, we’re taking a look specifically at the proposed changes to Taxation and National Insurance. We explore the key points of each change and what it could mean for you.

Changes to National Insurance

As predicted, cuts to National Insurance were announced during the Spring Budget 2024.

Class 1 Changes

In the Autumn Statement, Class 1 NIC paid by those who are employed/paid through PAYE and earning between £12,750 and £50,270 was reduced from a rate of 12% to 10%. In the Spring Budget, it was announced that from 6^th April 2024, the rate would be reduced by a further 2% to 8%. This could bring a maximum saving of £63 per month to employees.

Class 4 Changes

Self-employed people earning between £12,750 and £50,270 currently pay Class 4 National Insurance at a rate of 9%. Whilst it was expected that this would drop to 8% in April, it was announced that it will in fact be cut further to 6% from 6^th April 2024.

For those currently paying at a rate of 9%, this means that for every £1,000 of profit in the main band, they could benefit from a tax saving of £30 – up to maximum of £1,131 per year.

Both of these changes will bring small changes to people on a personal finance level. However, businesses aren’t set to benefit from the changes as no changes to Employers NICs are to be introduced.

Income Tax Related Changes

High Income Child Benefit Charge

Since 2013, a High Income Charge for Child Benefit in place. At the moment, those who earn over £50,000 are subjected to a charge resulting in a deduction to the amount of Child Benefit they receive. This appears as a 1% deduction for every £100 over the £50,000 income threshold. It means that when a person’s income reaches £60,000, they will no longer be entitled to Child Benefit.

However, The Chancellor announced that from 6 April 2024, the income threshold will increase to £60,000 and that the 1% charge will be applied to every £200 earnt over the threshold. This means that people will continue to be entitled to some amount of Child Benefit until they reach an income of £80,000.

Non-domicile status

The non-domicile tax status is set to be scrapped in the UK – a significant announcement made during the Spring Budget 2024.  However, the existing tax regime is intended to be phased out over a number of years, rather than brought to an immediate halt.

Under the new rules, from April 2025, people who move to the UK from abroad will not have to pay tax on the money they earn whilst overseas for the first four years of doing so. After the four years, they will need to pay tax in the same way as UK residents if they continue to live in the UK.

Those who already have non-domicile tax status are being granted a two-year transition period before they have to pay tax in the same way as those without non-domicile status. The Chancellor said that these people will be encouraged to bring their foreign income/wealth into the UK.

Property Related Changes

Holiday Lettings

Draft legislation is yet to be published, but what we know so far is that From April 2025, the Furnished Holiday Lettings tax regime will be abolished. Under the current scheme, FHL benefit from a number of tax rules, which we expect will be removed.

These are:

1. The entire finance costs, specifically mortgage interest, can be subtracted from FHL income.
2. When selling an FHL, there might be eligibility for business asset disposal relief, leading to a 10% capital gains tax rate.
3. Earnings from FHLs are considered relevant for pension purposes, enabling tax-advantaged pension contributions.
4. Under the accruals basis, capital allowances for items like furniture and fixtures can be utilized against rental income.
5. Under the cash basis, expenses for furniture and similar items are typically deductible as property business expenses.

Many questions remain unanswered, so we are keeping a close eye on what is being announced and eagerly await the legislation being published.

Stamp Duty

From June 1^st 2024, the Multiple Dwelling Relief (MDR) will be abolished. At present, it allows a relief in the Stamp Duty regime meaning  a reduction in the amount of Stamp Duty paid when two or more residential properties are purchased at the same time or as part of a linked transaction.

Capital Gains Tax

From April 6^th 2024, the amount of Capital Gains Tax paid at the Higher rate for UK residential property disposals will be reduced from 28% to 24%. However, the lower rate will remain the same at 18%. This will bring significant savings to higher rate payers.

Other Tax Related Changes

VAT

The threshold for which companies must register to charge and pay VAT is to increase from £85,000 to £90,000 from April 1, 2024.  This means that once revenue within a 12-month period reaches £90,000, the business must legally become VAT registered.

National Living Wage

As previously announced, from April 1^st 2024, the National Living Wage will increase by 9.8% and will also come into effect for those aged 21 and over.

Film Tax Credit

In the Spring Budget 2024, The Chancellor announced a new UK Independent Film Tax Credit – something the film industry will welcome due to their desire to receive more support from the UK government for a long time. The credit will have a headline rate of 53% for budgets up to £15million, which must exclude distribution and marketing costs.

Some rules we are aware of are:

• The company must have a UK director/writer/ or be certified as an official UK co-production
• Only productions after 1 April 2024 will be eligible
• Productions cannot claim separately under AVEC, 39% Animation, or the new Visual Effects tax relief if they are claiming this

Our Thoughts

Managing Partner, Sherad Dewedi shares his views on the changes announced in the Spring Budget 2024.

“We must be aware this Budget is likely to be the last before the next UK election, so there was no surprise that there was another cut to national insurance, despite calls for a cut to income tax. What seems to be being ignored is how employers continue to face significant increases in taxes and costs through increased corporation tax, minimum wage and whilst we welcome the benefits to employees, the lack of support in reducing Employers NI during such times feels unfair.

I do not believe people will see significant benefits of the increase in the VAT threshold of only £5,000. Nevertheless, it’s a step in the right direction.

In a landscape where taxes have increased to tackle our national debt and inflation, tax planning remains paramount and should not be ignored.”