Spring Budget: A new FIG leaf?

A pre-election Budget is usually the time for freebies to woo voters. But last week's Spring Budget contained far more than a 2% reduction in National Insurance or reducing the top rate of Capital Gains Tax on properties. Jo Summers, Partner in the Private Wealth & Tax team spoke to Practical Law about the key outcomes from last week.

When news started circulating that the Chancellor was considering abolishing non-dom status, I took it with a pinch of salt. So, it was a surprise to see Jeremy Hunt stealing one of Labour’s tax ideas.

From 6 April 2025, the concept of being a ‘non-dom’ will disappear.  Instead, we’ll have a new system of taxing foreign income and gains (FIG) for individuals who have been non-UK resident for at least 10 consecutive years before they arrive in the UK.

The FIG treatment will only be available for the first four years of residence. There will be no UK tax on any new FIG arising after 6 April 2025 (for those individuals who qualify). Plus, in a crucial change to the current rules, those individuals will be able to bring their FIG into the UK without any UK tax arising.  Afterwards, it is UK tax on worldwide income and gains.

Gone will be the requirement for separate capital and income accounts.  Also, any client who has left the UK to ‘restart’ the domicile clock after six years, will be disappointed.  They now need to remain offshore for at least 10 consecutive years before they return.

There will also be a consultation on abandoning the concept of ‘domicile’ for inheritance tax (IHT) and using residence instead.  I suspect this means UK residents will be liable to IHT on their worldwide assets after the four-year FIG period has expired.

If a non-dom has set up an offshore trust, any FIG that arose before 6 April 2025 will not be taxed unless a UK resident receives a distribution or benefit.  But there will be no protection for FIG arising in offshore trusts after 6 April 2025.

We are told these new measures will raise an additional £2.7bn per year by 2028-29, on top of the £8.5bn annual tax which non-doms already pay. But how were these figures calculated?

One of the difficulties HMRC has is knowing how much foreign income/gains any non-dom has offshore, if these aren’t remitted to the UK.

There’s no requirement to give a figure in the UK tax return (unless you’re claiming the defence to the TOAA rules) and most non-doms nominate a small bank account when claiming the remittance basis, rather than giving any real information on their offshore wealth.

The Institute of Fiscal Studies noted that non-doms paid £77m in the Remittance Basis Charge alone in 2020-21, and obviously that money will disappear when the remittance basis is abolished.

Will the approx. 37,000 non-doms who pay tax on the remittance basis each year all stay in the UK, and pay tax on their worldwide income and gains?

Given how many of my clients contacted me in a panic yesterday, asking which country they can move to, I suspect not.

I rather fear this measure will reduce the tax contribution from foreigners living in the UK, not increase it.