Globally Speaking | March 19, 2024

Non-dom analysis: overview of reforms

What was announced by the Chancellor in the Spring Budget on 6 March 2024 were wide-ranging reforms to the UK’s tax regime for non-UK domiciled (“non-dom“) individuals (“non-dom regime“). This article provides an overview of the measures announced; for a more in-depth look at the individual elements of what has been proposed, and how they affect different categories of non-dom, please see the series of focused “Non-dom analysis” articles in this issue.

It should be emphasised at the start that the non-dom announcements remain subject to legislation and, in the case of inheritance tax (“IHT“), consultation. Further uncertainty remains over whether there will be time for the legislation to be enacted before the next general election. If not, the current proposals will be vulnerable to change by a future (potentially Labour) government.

The existing non-dom regime

To put the scale of these reforms into context – the non-dom regime and the related concept of the remittance basis of taxation have been in existence since 1799. There were reforms in 1914, 2008 and 2017, but the basic principle that non-doms should only be taxed on their foreign income and gains (“FIGs“) if brought to the UK (“the remittance basis“) remained unchanged.

Since 2008, UK resident non-doms have had to pay an annual remittance basis charge to make use of the remittance basis after seven tax years of UK residence, the amount depending on the length of their UK residence. Further changes enacted in 2017 put an end to non-doms’ ability to benefit from the remittance basis indefinitely, through the introduction of deeming rules for all UK tax purposes after fifteen years of UK residence. These changes were, however, accompanied by generous protections for FIGs arising in offshore trust structures created by non-doms even after they became deemed domiciled in the UK, provided there were no “tainting” additions of value thereafter.

Likewise, for IHT purposes, provided an individual remains non-UK domiciled under general law, their non-UK assets (other than, since April 2017, indirectly held UK residential property interests or “relevant loans” in connection with such) can remain outside the scope of IHT for up to fifteen years of UK residence. Thereafter, the individual’s worldwide assets are subject to IHT, save for settled property in so called “excluded property trusts” created by them while non-UK domiciled and not deemed UK domiciled, which remains sheltered from IHT indefinitely.

Four-year exemption regime

The 2024 Spring Budget included the announcement that legislation will be enacted so that, from 6 April 2025, the remittance basis will be abolished and replaced with a new four-year residence-based exemption regime for FIGs (“four-year FIG regime”). This will apply to individuals who become UK resident after a period of at least ten tax years of non-UK residence. It will be this ten-year residence criteria that will define access to the new inpatriate regime for short-term residents, and not the historic concept of “domicile” that largely depends upon the domicile status of an individual’s father at birth. Residence will be determined by the UK’s existing Statutory Residence Test (details of which can be found here).

During the first four years of UK residence, it is proposed that new arrivals to the UK will not pay UK tax on their FIGs, including being able to bring them into the UK tax-free. They will also not pay UK tax on distributions to them from non-UK resident trusts (“offshore trusts“) of which they are a beneficiary, or FIGs arising in such offshore trusts that are attributed to them as settlors. UK resident non-doms who qualify for the new four-year FIG regime will continue to pay UK tax on their UK source income and gains, as well as UK income arsing in offshore trusts that is attributed to them, as they do now.

After four years of UK residence, the protection from UK tax for FIGs will cease and UK resident non-doms will be subject to UK tax on their worldwide income and gains as they arise. This will apply to FIGs arising to them personally, as well as FIGs within offshore trust structures attributed to the UK resident non-dom as settlor. In addition, FIGs which arose in offshore trust structures before 6 April 2025 will be taxed on UK resident beneficiaries if matched to worldwide trust distributions or benefits received by them.

Transitional rules

The legislation, when enacted, will include transitional rules for UK resident non-doms who, from 6 April 2025, are not eligible for the new four-year FIG regime.

In respect of foreign income, it is proposed that affected individuals will pay UK tax on only 50% of their foreign income arising in tax year 2025/26, where they have previously been taxed on the remittance basis. This reduction does not apply to foreign chargeable gains. From tax year 2026/27 onwards, UK tax will be due on such individuals’ worldwide FIGs in the normal way.

In respect of capital gains, where non-UK assets are held personally as at 5 April 2019, affected individuals will be able to elect for rebasing as at that date where the asset is disposed of after 5 April 2025, thereby reducing the chargeable gain.

In respect of FIGs that arose prior to 6 April 2025 and which are remitted to the UK after 5 April 2025, UK resident non-doms who have previously claimed the remittance basis will be able to elect to pay UK tax at a reduced rate of 12% under a new Temporary Repatriation Facility (“TRF“). This TRF will be available for tax years 2025/26 and 2026/27 only. It is presently unclear whether the TRF will apply to pre-6 April 2025 FIGs generated within trust structures.

IHT reform

Formal announcement of how the IHT rules may need to change to complement the new four-year FIG regime was not included in the Spring Budget itself. Instead, the government stated its intention to launch a consultation, which will shape their policy in this area. Any changes to IHT are expected to apply from 6 April 2025, alongside the new four-year FIG rules. To keep to this timetable, the IHT consultation document would need to be published shortly.

A technical note published alongside the Budget documents indicates, however, that the government intends to move IHT from a domicile-based system to a residence-based system also. IHT exposure will arise on the value of an individual’s worldwide assets once they have been resident in the UK for ten years. It is proposed that assets will remain within scope of IHT for a further ten years after the individual leaves the UK which is particularly harsh, and potentially an incentive for many non-doms to leave the UK before the ten-year IHT tail affects them.

Current IHT treatment will continue for any non-UK property that is settled by a non-dom settlor into a so called “excluded property trust” prior to 6 April 2025, which presents planning opportunities.

New trusts set up after 5 April 2025 and additions to pre-existing excluded property trusts after that date, will be subject to the proposed new residence-based IHT rules. The chargeability of trust assets to IHT (in the trust and within the settlor’s estate for settlor-interested trusts) will thus depend upon whether the settlor is within scope of the ten-year residence-based IHT regime at the relevant time, being when assets become comprised in the settlement, on ten-yearly anniversaries or when assets leave the trust.

The UK tax landscape for UK resident non-doms is about to change dramatically, both in relation to their FIGs (personal and arising within offshore structures) and IHT treatment. Taking professional advice to ascertain the potential impact of these reforms in clients’ individual circumstances at an early stage has never been more important. This is notwithstanding the element of uncertainty that will remain with us until proposed measures are enacted in legislation, which in some cases may not be in this Parliament. Please contact your usual contact at Wedlake Bell or the authors for any assistance in this regard.


It is indisputable that the concept of domicile is nebulous and uncertain, and the UK’s existing non-dom rules complex and difficult to operate in practice. As such, the greater certainty to be achieved through the adoption of a residence-based regime for FIGs will be welcomed by many.

However, the timeframe for the application of the new four-year FIG regime is less generous than many European jurisdictions’ remittance-based, lump-sum or inpatriate regimes, which typically provide beneficial treatment for new arrivals for up to ten or fifteen years (even if at a cost).

This will create unintended behavioural consequences, with individuals encouraged to leave the UK after the four-year “honeymoon” period, and certainly before they are brought into the scope of the proposed new IHT regime, with its ten-year IHT tail.

The corollary to that is that arrivals to the UK who do not intend to remain here in the medium-term are less likely to spend and invest in the UK, including during the four-year exemption window for FIGs. This would militate against the government’s revenue-raising objectives and impact on the UK’s attractiveness as a destination of choice for entrepreneurs, wealth creators and talent.