Kate Johnson
- Partner
- Private Client
The non-dom reforms first announced in the UK Spring Budget 2024 have since been the subject of intense scrutiny, but not so heavily publicised is the planning opportunity these reforms offer to US persons (a term which includes both US citizens and lawful permanent residents including green-card holders) looking to make a move across the pond. In 2024, over 6,100 US citizens applied for British citizenship, marking a 26% rise from 2023. This surge has been linked to the re-election of Donald Trump as US president. Despite the non-dom reforms, the new UK tax system remains attractive for US persons. We consider some key points on the reforms for US persons who come to the UK.
Overview of non-dom reforms
As of 6 April 2025, domicile has been abolished as a concept for UK tax purposes, including most significantly, for inheritance tax (“IHT“) purposes since the UK has moved to a solely residence-based regime. For IHT purposes, from 6 April 2025, non-doms who have been resident in the UK for at least ten of the previous twenty UK tax years are regarded as “long-term resident” in the UK (“LTR“) with the effect that their global assets are within scope of IHT on death and in relation to certain lifetime gifts, subject to any available IHT reliefs and exemptions. Such potential IHT exposure will continue for a “tail” period of between three and ten years once the LTR ceases to be UK resident.
At the same time, the “remittance basis” of taxation for non-doms (under which foreign income and gains (“FIG“) are only subject to UK income tax or capital gains tax if they are brought into – or “remitted” to – the UK) has been abolished for FIG arising on or after 6 April 2025. It has been replaced by a four-year residence-based FIG regime (“four-year FIG regime“) for certain qualifying individuals who make a claim to HM Revenue & Customs for the regime to apply to them for a specific tax year. The four-year FIG regime provides an exemption from UK taxes for a qualifying individual’s FIG for a maximum four-year period. To qualify, the individual must have been non-UK resident for tax purposes for ten years prior to their arrival in the UK. The four-year FIG regime is, therefore, more generous than the remittance basis given that, during the four-year period, income and gains (which are quantified by the individual in their FIG regime claim) will not be taxable even if the sums are remitted to the UK. At the same time, however (the clue being in the name), this generosity is limited to a period of four years. For further information on the reforms, see our article Reforms to the UK taxation of individuals and their wealth structures: a summary.
A tale of two regimes
Across the pond, the US began its own four-year regime in January 2025: the second term under President Donald Trump. In the context of a polarised political climate, wealthy US persons are exploring their relocation prospects and the UK emerges favourably as a candidate. Unlike the majority of other nations, US persons are subject to tax based on nationality rather than residence status, so there is an acceptance that they will pay US taxes on worldwide income and gains, wherever resident. In that sense, US persons will not (generally speaking) expect to reside tax free in any jurisdiction and are perhaps less likely to be put off by UK taxation reforms for non-doms.
Inevitably the differing tax regimes in the UK and US are likely to necessitate US persons taking steps to rearrange their affairs before they move to the UK and become subject to UK tax on their FIG, particularly in relation to their existing trusts and investments. The four-year FIG regime however will enable qualifying US persons to claim a UK tax exemption on their FIG for the entirety of President Trump’s second term, and therefore taking away the need to undertake pre-arrival planning, presenting an attractive option for short-term US connected residents in the UK. Many US persons looking to make the move may not be guided by tax concerns in the main or at all, and simply wish to see out the next four years in an English-speaking country with a wealth of cultural and historical attractions and high calibre educational institutions.
UK/US double taxation agreements
The UK/US double tax agreements (“DTAs“) may assist US persons who exceed a four-year stay in the UK (but have not yet reached the ten-year point where they become LTR for IHT purposes), as the DTAs will continue to have effect in the UK despite the 6 April 2025 non-dom reforms. Broadly, the DTAs seek to ensure that the same taxable asset, income or gain does not suffer taxation in both the UK and the US at the same time (double taxation). In the absence of the DTAs, the US person would otherwise on the expiry of the four-year FIG regime be subject to both UK taxation (on their FIG and UK income and gains) and US taxation (on worldwide income and gains).
Exposure to UK IHT is likely to be of great concern to US person as the IHT nil-rate band is far lower than the US equivalent, meaning that if the UK had taxing rights, the US person (or their estate) would likely have a higher liability under IHT than they would under US estate tax. To qualify for relief from IHT under the US/UK DTA for estate and gift tax (“the Treaty“), the individual must be “treaty domiciled” in the US and not a UK national. The Treaty may also potentially provide relief from IHT in respect of trusts of non-UK property that have been settled by treaty domiciled settlors who are not UK nationals. The Treaty falls short of assisting US persons who have become LTR and remain in the UK, since they are unlikely to meet the definition of “US treaty domiciled” under the Treaty, making a long-term stay in the UK inefficient for most US persons from an IHT standpoint, but the Treaty can hold advantages for shorter-term visitors who have a potential double tax exposure on their UK situated assets from an IHT/ US estate tax perspective. Importantly, the definition of treaty domicile is distinct from other usages of the term “domicile” and specialist advice should be sought.
Key takeaway
Those considering the exchange of one four-year regime for another across the Atlantic, may wish to obtain immigration and tax advice in both jurisdictions, and account for the time and expense in doing so when planning departure; but the UK is generally expected to remain attractive to US persons despite the recent non-dom tax reforms.
If you are a US persons considering acquiring UK property and/or relocating to the UK, please do not hesitate to contact a member of the Private Client team who can help you make an informed decision from a UK tax perspective.
This article is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases.
Meet the team:
Maia Smith
- Solicitor
- Private Client
