In case you haven’t heard, the UK’s tax system is getting a significant overhaul, and if you’re a South African living there or planning to move there, it’s something you need to wrap your head around. They’re scrapping the old “non-dom” remittance basis rules and switching to a system where your tax is based on where you reside. It’s a pretty big deal, and these UK tax law reforms will affect many people. Let’s dig into the details to see how you can ride the waves of change.
United Kingdom: Seismic shift from domicile to residence-based system of taxation
For decades, the UK’s tax system allowed individuals with non-dom tax status to avoid UK tax on their foreign income and gains, provided they were not remitted to the UK. This system, however, is being phased out and replaced by a residence-based approach to taxation.
As they stand presently, here’s a summary of the principal changes being proposed:
UK tax changes – shifting to taxation based on residency
From April 6, 2025, UK tax residents will be taxed on their worldwide income and gains, regardless of their domicile. This fundamental change will significantly affect South Africans who previously benefited from the non-dom regime.
UK tax on worldwide income – initial tax relief for new residents
A four-year tax exemption is being offered to facilitate the transition for those moving to the UK. Individuals who have been non-UK residents for the preceding decade can elect to exclude their foreign income and gains (FIG) from UK taxation for the first four years of their residency. This measure aims to ease the initial financial adjustment for new arrivals.
UK tax policy changes – impact on established residents
Individuals who have maintained residency in the UK for more than four years must now pay tax on their worldwide income and gains. This effectively removes the advantages previously available under the remittance basis system. Those who were UK tax residents before April 5th, 2025, will still have the option to benefit from the remaining portion of their initial four-year exemption period.
UK tax reforms – transitional support measures offered
The UK government offers two ways to help people using the old “non-dom” tax rules (the remittance basis) get used to the new system.
- Option 1: Resetting asset values for tax: If you owned foreign assets (like overseas property or shares) back on 5th April 2017, you can use their value from that date when calculating how much Capital Gains Tax (CGT) you owe when you sell them. This could mean you pay less tax. There are some rules you’ll need to follow to do this.
- Option 2: Bringing money back at a lower tax rate: There’s also a temporary chance to bring money you earned overseas, which you haven’t paid UK tax on, back into the UK at a reduced tax rate. This opportunity lasts for three years. For the first two years, the tax rate is 12%, and in the third year, it’s 15%. This is designed to encourage people to return their money to the UK before the new, stricter rules fully kick in.
New UK tax law changes affecting taxation of trusts
From April 2025, individuals who do not qualify for or choose to use the four-year exemption and who are non-domiciled or treated as such will no longer have tax protection on foreign earnings and investment gains produced within trusts they have established. These gains will be taxed similarly to those generated by UK-domiciled individuals.
UK tax reforms – inheritance tax (IHT) modifications
Who now pays inheritance tax on what?
- Long-term residents: If you’ve lived in the UK for 10 out of the last 20 years (and you’re over 20), when you die, Inheritance Tax (IHT) will be paid on all your assets anywhere in the world.
- Other residents: If you don’t meet that 10-year rule, IHT will only be paid on assets you own in the UK.
- Leaving the UK: Even if you move away, if you are a long-term resident, you might still have to pay IHT for a few years, depending on how long you have lived in the UK.
New tax laws UK – adjustments to estate planning provisions
Changes to agricultural and business property relief will be made, and from April 2027 onwards, the value of unused pension funds and death benefits will be incorporated into estate valuations.
Tax law changes in the UK – Capital Gains Tax (CGT) rate revisions.
The rates for CGT have been adjusted, increasing from 10% to 18% for those in the basic tax bracket and from 20% to 24% for those in higher tax brackets on asset disposals made from late October 2024. Trustees will now be subject to a CGT rate of 24%.
New UK tax laws – Stamp Duty Land Tax (SDLT) rate adjustments
The higher SDLT rates for purchasing additional properties will rise from 3% to 5% above the standard residential rates. The single rate for companies and non-natural persons acquiring residential properties exceeding £500,000 will increase from 15% to 17%. These changes apply to transactions with effective dates from late October 2024.
UK Income Tax and National Insurance Contributions (NIC) policies
The government has pledged to maintain the current income tax and NIC rates. From April 2025, the Employer NIC rate will increase from 13.8% to 15%, and the threshold for businesses to commence paying NIC on employee earnings will decrease from £9,100 to £5,000 until April 2028.
How South Africans can benefit from the new UK tax changes
While the UK’s tax reforms introduce significant shifts, particularly with the phasing out of the non-dom tax regime, there are specific avenues through which South Africans can seek advantage, both for those already residing in the UK and those planning a future move.
For South Africans planning to emigrate to the UK:
The most significant potential benefit is likely to be found in the four-year Foreign Income and Gains (FIG) regime. This provides a strategic window for those moving to the UK. Also, if you’ve maintained non-UK tax residency for the past decade, you can capitalise on a four-year exemption from UK tax on your overseas income and gains. This allows you to:
- Strategically time your move: By carefully planning your emigration, you can maximise these four years, allowing for a smoother financial transition.
- Restructure financial affairs: This period offers an opportunity to reorganise investments, repatriate funds, and adapt to the UK’s financial landscape before full tax liabilities kick in.
- Establish a financial foothold: Use this time to establish UK-based investments and structures, preparing for the long-term tax implications.
However, it is vital to remember that this exemption is only temporary. As such, careful long-term financial planning is needed to manage the transition to full UK tax liability after the four years.
For South Africans already residing in the UK:
Those already in the UK, especially those who previously relied on the remittance basis, will have to change thrust upon them. However, specific opportunities exist:
- The Temporary Repatriation Facility (TRF) allows offshore funds to be brought into the UK at a reduced tax rate. This allows for financial consolidation and potentially reduces future tax burdens.
- Capital Gains Tax (CGT) re-basing: The provision to rebase foreign assets held on 5th April 2017 for CGT purposes can be helpful for those with long-held investments. This could reduce potential CGT liabilities upon future disposal.
- Financial review and restructuring: The changes require a thorough review of financial affairs. This presents an opportunity to restructure investments, align them with the new tax rules, and potentially optimise overall financial strategies.
- Estate planning review: The changes to inheritance tax mean that a thorough review of estate planning is essential. South Africans can take this opportunity to ensure that their estate is structured in the most tax-efficient way possible.
FinGlobal: cross-border tax specialists for South African expats
Whether you’re a South African already living in the UK or you’re still planning your relocation to the UK, FinGlobal is ready to help you with your money moves. Our team includes certified financial planners, chartered accountants, tax specialists, and bankers who provide expertise in all cross-border finance and taxation areas. So, no matter what you need to achieve, FinGlobal can assist with a Personalised Financial Emigration Plan™ that gets your money where it needs to be safely and in a cost-effective and tax-compliant manner. We can help with retirement annuity withdrawal, tax emigration, international money transfers, and more.
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