Tax Opportunities in the Spring Budget .

I was not surprised to see the withdrawal of benefits for non-UK Doms in last week’s budget. The Spring Budget was delivered by the Chancellor of the Exchequer, Jeremy Hunt, in the Commons on Wednesday. However, I was surprised and pleased by some of the details.

UK doms returning to the UK after ten years of non-UK tax residence can, starting in April 2025, benefit in the same way non-UKdoms can now—for a limited period.

From April 2025, when you return to the UK, income and gains made abroad will be 100% tax-free for the first four years, whether brought into the UK or invested abroad!

The Press Release revealed its intention from the first sentence: ‘The Government wants the UK to have a fair and internationally competitive tax system, focussed on attracting talented individuals and investment that contributes to the growth of the economy’.

The second paragraph said, ‘The concept of domicile is outdated and incentivises individuals to keep income and gains offshore.’ I agree, and I have said for years that it was ludicrous.

The benefit for non-doms living in the UK was the remittance basis of tax. This was initially conceived to encourage entrepreneurs to make their fortunes abroad. Their foreign income and gains were not taxed until they brought the money to the UK.

After the Great Wars, the Treasury needed to raise revenue. It replaced the remittance basis of taxation with the arising basis. This meant that foreign income and gains were taxed as they arose and not when brought into the UK. However, it was considered unfair for those for whom the UK was not their home country, the non-UK doms, to pay tax on the arising basis. These people were allowed to continue to pay tax on their foreign income and gains as and when they were brought to the UK.

The country treated as your home country was the country your father treated as home at your birth. Of course, this concept is now outdated. With the ease of air travel and the lifting of exchange controls, people can now leave a country they may have treated as home to work and settle elsewhere.

For example, this week's podcast professional is Michael Farrant, founder of Farrant Group. He moved to Dubai to live with his wife and three boys. Let’s assume he was born in the UK and still treats the UK as his home country. He is, therefore, likely to be a tax resident of Dubai but remains domiciled in the UK for UK tax purposes.

Let’s assume that Michael has a colleague with whom he works, Said. Although Micheal and Said both went to school in the UK, Michael is domiciled in the UK. However, Said’s father treated a country in the Middle East as his home country at his birth, so Said is non-UK domiciled, whereas Michael would be treated as UK domiciled.

If both Said and Michael returned to the UK in April of this year, Said would not be charged tax on his Foreign Income and Gains, provided they were not brought into the UK. However, Michael would be taxed on this foreign income and gains as they arose. The government considers this unfair.

This is now set to change.

The government is to end the current rules for non-UK-domiciled persons by introducing a new residence-based regime that will take effect in April 2025, next year, and will affect both Michael and Said.

New arrivals to the UK will benefit from 100% UK tax relief on foreign income and gains for the first four years that they are tax resident here. New arrivals are defined as anyone with 10 consecutive non-residence years, regardless of their domicile.

After April 2025, if Said and Michael came to live with their families in the UK, they would not be taxed on their income or gains made abroad for the first four years they are UK tax residents—regardless of whether they bring the foreign income and gains into the UK.

Under the current regime, no inheritance tax is due on non-UK assets of non-doms until they have been residents for 15 out of the previous 20 years. The government wants to move the taxation of inheritance tax to a residence-based regime.

However, the Press Release clarifies that the treatment of non-UK assets settled into a trust by a non-UK-domiciled person before April 2025 will not change. These assets will not be within the scope of the IHT regime.

It would also appear that non-UK dom people can still settle non-UK situs assets into offshore trusts before April 2025 and avoid inheritance tax on these assets if they are this year and next non UK domiciled..