The UK chancellor announced in the Spring Budget 2024 the end of the remittance basis for UK non-domiciliaries from 6 April 2025 and proposed changes to Inheritance Tax (IHT) that would expose the foreign assets of many "non-doms" to the tax.
The proposed changes to the UK non-dom regime signal the end of the remittance basis – the system under which non-doms could limit their UK tax to UK source income and gains and foreign income and gains brought into the country.
The rule changes could prompt non-doms to consider residences and tax regimes outside the UK, including Italy. While the UK has been steadily tightening its previously generous regime for new arrivals, the Italian government has been moving in a different direction with the 2017 introduction of the special tax regime for high-net-worth individuals.
UK non-dom reform
Under the plans put forward in the 6 March Budget, new arrivals who have been outside of the UK for 10 consecutive years will be fully exempt from UK tax on their foreign income and gains for the first four tax years. Thereafter, they will be treated like other UK residents and subject to taxation of their worldwide income and gains.
For individuals who have already been UK tax resident for some years, the government has offered targeted transitional rules in place for the 2025-2026 tax year which, if implemented, will reduce their taxable overseas income by 50%. Existing non-doms will also be able to remit their income and capital gains arising before 6 April 2025 in the UK tax years 2025-2026 and 2026-2027 at a generous rate of 12%.
The proposed changes in relation to IHT will mean that an individual is subject to UK IHT on their worldwide assets after a period of 10 years of UK residence (down from the current 15 out of 20 years). If an individual is non-UK resident for 10 years then they will no longer be subject to UK IHT on their worldwide estate, only on their UK assets.
The transitionary provisions come with a major caveat as the Labour party, currently riding high in the polls, has also announced its proposed changes to the non-dom regime. While suggesting that it will push forward with the reform of the non-dom regime it has rejected the more generous plans and suggested that it will not allow the 50% transitionary rate of tax for 2025-2026 nor the IHT carve out for trusts established before the taxpayer hits the 10-year mark.
Italy's special tax regime
Following the 2017 introduction of the special tax regime, high-net-worth individuals transferring their tax residence to Italy can now elect to or pay a flat tax of €100,000 per year. This flat-tax regime replaces their personal income and other taxes due on their foreign income and assets.
To qualify, the individuals must have moved their tax residence to Italy and not been resident in Italy for at least nine of the previous 10 tax years. This can be used regardless of citizenship – so is equally available to Italians – and the regime operates for a maximum of 15 tax years.
Moreover, according to the Italian law, the flat-tax regime can also be extended to one or more family members of the main applicant.
In the latter case, the substitute tax is €25,000 for each of the family members transferring their residence to Italy.
Taxpayers meeting the requirements may decide to join the new regime at the time of submission of the tax return, for the tax period in which they acquired tax residence in Italy or immediately after.
In order to be certain of meeting the requirements of the law, it is possible to submit a specific application in advance for a tax ruling to the Assessment Central Department of the Italian Revenue Agency.
An election for the flat-tax regime also provides a full exemption from Italian donation and IHT on foreign assets during the 15 year period. Ordinarily, Italian IHT applies at rates ranging from 4-8% on all assets, although residents of Italy can utilise a nil-rate band of €1,000,000 per person.
Osborne Clarke comment
It now seems that, whatever the results of the UK general election, the remittance basis is going to disappear. The proposed four-year exemption period could be extremely attractive to international individuals and families if planning is done properly, but there will, unfortunately, remain a lot of uncertainty about the new rules and any transitionary periods, until a potentially new UK chancellor announces their first Budget. Depending on the timing of the election, this could be any time between this September and March 2025.
Given the current polling, non-doms who have already been here for three or more years should brace for the possibility of losing all the tax benefits of their current status from April 2025.
If UK non-doms are considering leaving the UK to avoid worldwide taxation then Italy is worthy of serious consideration. The flat-tax regime is highly attractive with clear rules, generous exemptions and a full 15-year duration.
Anybody considering the move should take early advice to ensure they make the most of the exemptions available and to secure an advance ruling before they arrive in Italy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.