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The UK's Tax Winds are Changing
In April 2025, the UK government plans to roll out a new tax regime, significantly affecting Non-Resident Indians (NRIs) and recent migrants. This update will eliminate a feature of the British tax system that has been in place for two centuries, potentially raising the tax obligations for those who are immigrants and the ones looking to settle in the UK.
What is The Proposed Change in Taxation?
- Currently, Indian income and capital gains of NRIs are not taxed unless remitted to the UK. But, this proposal aims to end this current tax treatment.
- Under the new proposed regime, individuals arriving in the UK will not be taxed on their foreign income for the first four years of residency. But, starting the fifth year, UK residents will be liable to pay taxes on their worldwide income, including earnings from sources like rent, bank fixed deposits, and stocks in India.
- It is also suggested that existing NRIs who migrated two years ago as non-doms will be able to claim tax relief on their foreign income for the remaining two years.
Experts Weigh in on Tax Changes
Experts suggest that the existing UK tax rates are 40% for dividend income and 45% for other types of income, which contrasts sharply with the rates under the India-UK tax treaty.
In India, the rates are much lower: 10% for dividend income, 28% for rental income after standard deductions, and 40% for other forms of income. With the proposed adjustments to the UK tax regime, NRIs could face an increase in tax liabilities—potentially 30% more on dividend income, 17% additional on rental income, and an extra 5% on other income.
Impact of Proposed Tax Changes on NRIs
If implemented, the new tax rules could lead to higher tax liabilities for NRIs, particularly those with investments or business interests in the UK and India.
Under the newly proposed tax changes, NRIs who have resided in the UK for a decade and currently hold non-domiciled status would be subject to a 50% tax rate on their foreign income in the first year. Furthermore, any remittances linked to pre-2025 foreign income would incur a 12% tax for the first two years.
In response to these changes, research suggests that Indian families considering relocating to the UK might delay their plans until after the next UK election in the hope of potential tax revisions by a new government.
Those already in the UK should review how the new tax regulations could affect their income and inheritance planning. NRI families with larger assets abroad might need to adjust their trust structures and distribution tactics to comply with the updated rules.
In Conclusion
While the full extent of the proposed tax reforms is still unfolding, proactive engagement and strategic planning are NRIs’ best defenses against any adverse effects. Keeping a close eye on the developments and adapting your financial plans accordingly will help you navigate these tax changes successfully.
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