An estimated 200 000 South Africans living in the UK and those considering moving there in the next four years will be subject to significant changes to the taxation of non-UK domiciled individuals, effectively abolishing the preferential, long-standing non-dom regime from April 6, 2025.
This reform, details of which were spelt out by the new Labour government’s first Autumn Budget, represents the most substantial overhaul of the UK's international taxation framework in recent history, with significant implications for non-dom UK residents and those thinking about emigrating to the country.
Many wealthy families and individuals have already moved due to the new non-dom tax regime, and others plan to. An Oxford Economics survey this year found that more than 80% of the non-doms polled said the changes to inheritance tax were a significant reason for leaving the UK for other jurisdictions, like Switzerland, Monaco and Italy, which still offer preferential tax dispensations.
South Africans affected by these changes are advised to begin considering and planning for them because of their significant impact on foreign income and capital gains, non-UK trusts, and the tax implications for inheritances. Below is a summary of the changes, the transition reliefs, and steps SA UK non-doms and other potentially affected South Africans can take.
New four-year Foreign Income and Gains (FIG) regime
The cornerstone of the new system is the 4-year FIG regime, which replaces the current remittance basis. To qualify, individuals must:
• Be in their first four tax years of UK residence
• Have been non-UK resident for at least 10 consecutive years prior
• Make an annual claim through their Self Assessment Tax Return
Those eligible for the FIG regime will not be taxed on most foreign income and gains during the four-year period, whether remitted to the UK or not. However, they will forfeit their personal allowance and CGT-exempt amount. Important exclusions apply to foreign employment income and offshore life insurance policies.
Implications for existing UK residents
For those currently residing in the UK who don't qualify for the FIG regime, the changes are significant:
• All foreign income and gains will be taxable on an arising basis
• Pre-April 2025 foreign income and gains will still be taxed when remitted
• Trust protections will be removed for settlor-interested structures
• UK resident settlors will be taxed on trust income and trustee gains on an arising basis
• Non-UK trusts subject to periodic inheritance tax charges
Temporary Repatriation Facility (TRF)
A three-year window of opportunity exists for bringing offshore funds to the UK at preferential rates:
• 12% tax rate for 2025/26 and 2026/27
• 15% tax rate for 2027/28
• Available to former remittance basis users
• Applies to pre-April 2025 foreign income and gains
• Applies to certain distributions from non-UK trusts
• No requirement to identify sources in mixed funds
• Payment is required upon designation, regardless of remittance timing
Capital Gains Tax changes
Significant CGT modifications include:
• Rate increases from October 30, 2024 (18% basic rate, 24% higher rate)
• Rebasing to April 5, 2017 available for qualifying personally held assets
• Trust gains becoming taxable on UK resident settlors
• Anti-forestalling measures for pre-announcement contracts
Inheritance tax reform
The regime shifts from domicile-based to residence-based testing:
• Long-term resident (LTR) status applies after 10 years of UK residence in the last 20 years
• Longer "tail" period for those leaving the UK. For instance, for those resident in the UK for 20 years, the tail lasts 10 years
• Special transitional rules for those leaving before April 2025
• Modified treatment of offshore trusts based on settlor's LTR status
Trust implications
The changes significantly impact trust structures:
• Trust income and gains are generally taxable on UK resident settlors
• Non-UK assets in discretionary trusts become IHT-exposed when settlor is LTR
• Pre-October 2024 trusts retain some protection from the reservation of benefit rules
• Exit charges may apply when assets fall out of IHT scope
• Modified rules for Qualifying Interest in Possession trusts
Planning considerations before April 2025
1. Immediate actions
- Review existing structures and consider reorganisation before April 2025
- Evaluate opportunities under the TRF
- Consider CGT rebasing opportunities
- Assess trust distributions before the new regime takes effect
2. Long-term strategy
- Review UK residence patterns and planning
- Consider restructuring of foreign income sources
- Evaluate trust continuation vs. termination
- Plan around the new four-year FIG regime
3. Trust planning
- Review settlor-interested trust structures
- Consider trust reorganisation before April 2025
- Evaluate the benefits of trust termination
- Plan for potential exit charges
4. Investment strategy
- Review investment holding structures
- Consider the realisation of gains before rate increases
- Evaluate mixed fund cleansing opportunities
- Plan for ongoing investment management under the new regime
The abolition of the non-dom regime represents a fundamental shift in UK tax policy. South Africans currently in the UK or planning to move there should seek professional advice to review their structures and implement appropriate planning measures before the changes take effect.
The window before April 2025 offers important opportunities for restructuring and tax-efficient repatriation of offshore funds through the TRF. Long-term residents should focus on inheritance tax exposure and trust structures, while newer arrivals should carefully plan around the four-year FIG regime.
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