UK Tax Reform: What US Expatriates Need to Know - Spring Budget 2024 Insights
Last update: 20th March 2024
Author: Alistair Bambridge is a Chartered Accountant with specialization in US expatriate tax and Covered Expatriate status, boasting over 20 years of experience. He has been awarded for excellence in High Net Worth and Expatriate Tax services. A recognized tax advisor, he's been featured on CNN and BBC. A leader at Bambridge Accountants, he guides many on renouncing US citizenship.
On March 6, 2024, the UK government unveiled the Spring Budget 2024, bringing significant tax reforms that impact US expatriates in the UK. As experts in U.S. expatriate taxation, we've been fielding many questions about how these changes, especially the overhaul of the non-domiciled (non-dom) status, will affect US citizens living in the UK. This update aims to break down the main points of the Spring Budget 2024, helping US expatriates understand how these changes might alter their tax responsibilities and financial planning while living abroad.
UK Reform of Non-Dom Status
The Chancellor's announcement confirmed the anticipated overhaul of the non-dom regime, a cornerstone of the Spring Budget 2024. Traditionally, the non-dom status allowed individuals residing in the UK but with a domicile elsewhere to opt for a remittance basis of taxation. This meant they were taxed only on the income they brought into the UK, potentially leading to significant tax savings on foreign income and gains.
Transition to a Residency-Based System
In a move to modernise and simplify the tax system, the existing non-dom regime will be phased out. From April 6, 2025, the UK will adopt a "residency-based system," aligning more closely with tax models in jurisdictions like Italy and New Zealand. This shift signifies a departure from the domicile-centric approach, to foster a fairer tax landscape and maintain the UK's competitive edge.
Implications for US Expatriates
For US expatriates leveraging the non-dom status, this reform marks a pivotal change. Once the transition comes into effect, individuals who have been UK residents for more than four years will be subject to UK taxes on their global income and gains, irrespective of whether or not these funds are brought into the country.
If you are unsure if you are a UK resident for tax purposes our UK resident test article
Key Considerations:
Four-Year FIG Regime: A new four-year foreign income and gains (FIG) regime will be introduced for individuals becoming UK tax residents after ten years of non-residence. During the initial four years of UK residency under this regime, individuals will not be taxed on foreign income and gains, provided these are not remitted to the UK.
Statutory Residence Test: The determination of tax residence will hinge on the Statutory Residence Test, overlooking treaty residence or non-residence considerations.
Transition Provisions: The budget outlines several transitional provisions, including Capital Gains Tax rebasing for specific foreign assets and a Temporary Repatriation Facility, introducing a 12% tax rate for certain remittances in the tax years 2025/26 and 2026/27.
Action Steps for US Expatriates
Given the significant overhaul of the non-dom regime, US expatriates nearing or surpassing their fourth year of UK residency must reassess their tax strategies. Engaging with a tax professional is advisable to navigate the complexities of these changes and to optimize your tax position under the new residency-based system.
Book a tax planning consultation with our expat US accountants
Enhancements in NICs and Living Cost Support
Beyond the non-dom reform, the Spring Budget 2024 also brings reductions in National Insurance Contributions (NICs), providing a welcome increase in take-home pay for employed US expatriates. Additionally, measures to alleviate living costs and bolster public services are part of the budget, offering broader support to all UK residents, including the expatriate community.
Conclusion
The Spring Budget 2024 introduces a transformative agenda for tax regulation in the UK, with the reform of the non-dom status standing out as a critical development for US expatriates. As the UK shifts towards a residency-based tax system, understanding these changes and their implications on your financial and tax planning becomes paramount. Staying informed and seeking expert advice will be key in adapting to this new tax landscape, ensuring that US expatriates can navigate the transition smoothly and effectively.
