As announced in the Autumn Budget 2024, the government will introduce legislation in Finance Bill 2024-25, abolishing the remittance basis of taxation for non-UK domiciled individuals and replacing it with a residence-based regime, which will take effect from 6 April 2025.
The new regime will provide 100% relief on foreign income and gains for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the 10 consecutive years prior to their arrival (four-year foreign income and gains regime).
Transitionally, for Capital Gains Tax purposes, current and past remittance basis users will be able to rebase foreign assets they held on 5 April 2017 to their value at that date when they dispose of them.
Any foreign income and gains that arose on or before 5 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK under the current rules. This includes remittances by those who are eligible for the new four-year foreign income and gains regime.
A new Temporary Repatriation Facility will be available for individuals who have previously claimed the remittance basis. They will be able to designate and remit at a reduced rate foreign income and gains that arose prior to the changes. This includes unattributed foreign income and gains held within trust structures. The Temporary Repatriation Facility will be available for a limited period of three tax years, from 2025 to 2026. The Temporary Repatriation Facility rate will be 12% for the first two years and 15% in the final tax year of operation.
The current domicile-based system of inheritance tax will be replaced with a new residence-based system. This will affect the scope of non-UK property brought into UK inheritance tax for individuals and trusts. An individual is long-term resident (and in scope for inheritance tax on their non-UK assets) when they have been resident in the UK for at least 10 out of the last 20 tax years and then remain in scope for between three and 10 years after leaving the UK. Subject to transitional points, any non-UK assets a person put into a settlement will be subject to Inheritance Tax charges at times when the settlor is long-term resident.
The measure extends the period of Overseas Workday Relief to four years to align with the new four-year foreign income and gains regime. The removal of the remittance basis means it will no longer be necessary to keep part of their employment income offshore and in an offshore bank account to benefit from relief.
From 6 April 2025, Overseas Workday Relief will be subject to a financial limit on the amount of relief that can be claimed; this is the lower of £300,000 or 30% of an individual’s total employment income.
Employers or their agents will no longer be required to wait for HMRC to approve their application for a direction to operate PAYE on the proportion of an employee’s employment income for work carried out in the UK.
In addition, individuals will not be able to claim income tax relief on chargeable overseas earnings for income earned on or after 6 April 2025. This relief applied to earnings relating to a foreign employment carried out wholly abroad for those who do not qualify for Overseas Workday Relief.
These earnings will continue to be taxable on the remittance basis if brought to the UK after 6 April 2025 and are eligible for the Temporary Repatriation Facility. The exemption to travel costs incurred by non-domiciled employees that are paid for by employers when they come to work in the UK and any business-related travel within the time limit of five years will be reduced to four years to align with the four-year foreign income and gains regime.
