Overseas personal tax issues

It was confirmed as part of the Autumn Budget measures that changes announced by the previous government at the Spring Budget earlier this year will proceed almost entirely as initially announced. From April 2025, the government will abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler residence-based regime.

The government will also introduce a 4-year foreign income and gains (FIG) regime. New arrivals to the UK who opt into the regime will benefit from 100% relief on FIG 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.

As a transitional measure for Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets they held on 5 April 2017 to that date where certain conditions are met.

Overseas Workday Relief will be extended to a 4 year period to align with the new 4-year FIG regime. This will remove the need for users of this relief to keep their employment income offshore. The amount of Overseas Workday Relief that can be claimed annually will be limited to the lower of £300,000 or 30% of the employee’s net employment income from 6 April 2025.

A new Temporary Repatriation Facility (TRF) for individuals who have been taxed on the remittance basis will also be introduced from April 2025 for 3 years. This will allow individuals 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 TRF rate will be 12% for the first 2 years and 15% in the final tax year of operation.

A reminder that the government has stated that it will remove preferential tax treatment based on domicile status for all new foreign income and gains (FIG) that arise from 6 April 2025. To replace the present remittance basis of tax, the government will introduce an internationally competitive residence-based regime, providing 100% relief on FIG for new arrivals to the UK in their first four years of tax residence, this is provided that they have not been UK tax resident in any of the 10 consecutive years prior to their arrival.

From 6 April 2025, the protection from tax on income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the 4-year FIG regime.

The government intends to conduct a review of offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation, to modernise the rules and ensure they are fit for purpose. The intention for this review will be to remove ambiguity and uncertainty in the legislation, make the rules simpler to apply in practice and ensure these anti-avoidance provisions are effective. Further details on the review will be provided in due course. It is not anticipated that this review will result in any changes before the start of the 2026-27 tax year.

A form of Overseas Workday Relief (OWR) will be retained. Government officials will engage with stakeholders on the design principles for this tax relief and further details are expected to be confirmed in the Budget later this month.

One of the more ‘niche’ measures introduced as part of the Autumn Statement measures related to Capital Gains Tax: Share for Share Exchange. 

This is intended to stop UK tax being avoided by non-UK domiciled individuals on chargeable gains made on the disposal of a UK business, or income received in respect of shares or securities held in a UK business, by exchanging securities in a UK company for securities in a non-UK holding company. 

The new measure took effect for share exchanges or schemes of reconstruction conducted on or after 17 November 2022. The measure only applies to holdings greater than 5% in ‘close’ companies.

The measure deems shares and securities in a non-UK company received in exchange for share or securities in a UK company to be located in the UK for the purpose of Capital Gains Tax.

Non-domiciled individuals will now pay tax on gains or income received from the shares or securities in the non-UK company, in the same way as if they were in a UK company.
 

UK Income Tax is generally payable on taxable income received by individuals including earnings from employment, earnings from self-employment, pensions income, interest on most savings, dividend income, rental income and trust income. The tax rules for foreign income can be overly complex.

However, as a general rule if you are resident in the UK you will need to pay UK Income Tax on your foreign income, such as:

• wages if you work abroad;
• foreign investments and savings interest;
• rental income on overseas property; and
• income from pensions held overseas.

Foreign income is defined as any income from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign.

If you are not UK resident, you do not generally have to pay UK tax on your foreign income. There are special rules if you work both in the UK and abroad.

The rules are even more complicated when addressing the liability to UK Income Tax for non-domiciles spending a substantial amount of time in the UK. There is a concept in the UK of deemed domicile, whereby any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes.

Other non-doms living in the UK that wish to retain access to the remittance basis of taxation must pay an additional sum in addition to the tax on any income or gains remitted. This sum is known as the Remittance Basis Charge.

Domicile is a general legal concept which in basic terms is taken to mean the country where you permanently belong. However, actually determining domicile status can be complex. In fact, HMRC’s guidance states that domicile cannot be defined precisely, but the concept rests on various basic principles.

• Every individual must have a domicile at all times. The law ascribes a domicile to those individuals it regards as lacking capacity to choose one.
• An individual cannot have more than one domicile at the same time for the same purpose.
• An existing domicile is presumed to continue until it is proven that a new domicile has been acquired.

Your first domicile, known as a domicile of origin, is based on that of your parents, usually your father. Your domicile will change if you acquire a new domicile of choice. To do this, you usually have to move to another country and establish a permanent intention to remain there.

Although domicile can change, there is generally a presumption in favour of the continuation of an existing domicile. To change a domicile, lots of factors are considered. For example, the location family, property and business interests. The issues that need to be considered are one of the primary reasons that many of these complex cases are decided in court.

It is also possible for an individual to have two domiciles although this is unusual. Further, there is a concept in the UK of deemed domicile, whereby any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes.