I am planning to move to the UK – how will the UK’s new residence-based tax rules apply to me and is there anything I need to do before moving?
The changes to the tax rules for non-UK domiciled individuals (“non-doms“) confirmed by the UK government as part of the Autumn Budget on 30 October 2024 will take effect from 6 April 2025 (the 2025/26 tax year). This means that we are in the final tax year (running from 6 April 2024 to 5 April 2025) under the existing non-dom regime.
The existing regime
A person who is non-dom (and not deemed domiciled in the UK) can currently come to the UK and claim the remittance basis of taxation. The application of the remittance basis means that such individuals are only exposed to UK tax on:
- UK source income and gains on UK sited assets (or indirectly held UK property interests and relevant loans in connection with such); and
- any foreign income and gains (“FIG“) that they bring in or “remit” to the UK.
Consequently, FIG kept outside the UK are outside of the UK tax net.
A claim for the remittance basis is made in the taxpayer’s self-assessment tax return. It is possible to claim the remittance basis for the first seven years of UK residence without charge; thereafter, an annual remittance basis charge is levied at £30,000 or £60,000 depending on how long a person remains UK resident.
Under the new rules, the remittance basis of taxation will be abolished from 6 April 2025.
There are currently different rules that apply to individuals who were born in the UK with a UK domicile of origin, so called “formerly domiciled residents” (“FDRs”), which prevent them from claiming the remittance basis. These rules will also be abolished from 6 April 2025.
The new four-year FIG regime
A new four-year residence-based exemption regime will apply to FIG (the “four-year FIG regime“) from 6 April 2025. What this means in practice is that qualifying individuals will be exempt from UK tax on their FIG for the first four years of UK residence, regardless of whether the FIG are brought to the UK or not. There will be no charge to access the regime but a claim for the regime to apply must be made in the taxpayer’s self-assessment tax return before 31 January in the second year after the year to which the claim relates. For example, a claim for the regime to apply to the 2025/26 tax year must be made by 31 January 2028. This requires the taxpayer to list out each source of FIG for which they are claiming the exemption.
Will I qualify for the four-year FIG regime?
Domicile will no longer be a relevant consideration. Instead, anyone who has been non-UK resident for at least ten consecutive tax years will be eligible, including those individuals who would meet the definition of FDRs and who are prevented from claiming the remittance basis under the current regime. This presents an opportunity for expats to return to the UK with limited UK tax exposure (albeit for a period of up to four tax years only), particularly when combined with the favourable inheritance tax treatment from which they can benefit (for more information on which, please see “Non-dom reforms: the inheritance tax need-to-knows“).
Those individuals who have been UK resident for even one or two tax years (for example) during the preceding ten tax years will not qualify for exemption under the new regime, and will instead become immediately liable to UK income tax and capital gains tax on a worldwide basis in their first year of UK residence from 6 April 2025.
The four-year FIG regime is restricted to four tax years from an individual’s first year of UK residence. Consequently, should such an individual become UK resident in tax year 2025/26 for the first time, but then become non-UK resident in tax years 2026/27 and 2027/28, they will only be able to access the regime for one more tax year: in 2028/29. Similarly, if an individual becomes UK resident from 6 April 2024, they will only have three tax years from 6 April 2025 in which to access the four-year FIG regime. They would then need to be non-UK resident for ten consecutive tax years to “re-set” and access the four-year FIG regime again. For further details on the four-year FIG regime, please see “Non-dom reforms: the first four years“.
What if I stay longer than four years?
It is common for clients to come to the UK with the intention to stay longer; for example, when a child is at school here or upon obtaining employment having completed a period of higher education in the UK. Under the four-year FIG regime, after four years of UK residence, such individuals will be exposed to UK tax on their worldwide income and gains, as well as UK inheritance tax if they stay in the UK for more than ten tax years, subject to any relief that may apply under an applicable double tax or estate treaty.
What happens if I become UK resident before 6 April 2025?
If an individual is UK resident in tax year 2024/25, they can claim the remittance basis provided they are not domiciled (or deemed domiciled) in the UK.
If they qualify for the four-year FIG regime in tax year 2025/26 (and potentially up to two further tax years, if tax year 2024/25 is their only year of UK residence in the previous ten tax years), they can then remit to the UK their current year FIG without a tax charge. Any previously unremitted FIG arising in tax year 2024/25 (or previous periods of UK residence) can be remitted to the UK under transitional relief (known as the Temporary Repatriation Facility or “TRF“) provided the taxpayer claimed the remittance basis in 2024/25 (or other relevant previous tax year). Such amounts will be taxed at a rate of only 12% if designated under the TRF for tax years 2025/26 and 2026/27, with the rate increasing to 15% for amounts designated under the TRF for the 2027/28 tax year. These rates are much lower than the rates normally applying to remittances of income (up to 45%) and gains (up to 24% or 28%). Once a designation has been made and the TRF tax charge paid, the designated amount can be brought to the UK at any point, even after the TRF period ends on 5 April 2028. For more information on the TRF, please see “Non-dom reforms: the four year itch“.
It will still be necessary to seek advice in relation to the individual’s domicile position if they have come to the UK before 6 April 2025.
What if I arrive part-way through a tax year?
Generally, residence for part of the UK tax year is regarded as residence for the entire tax year. However, in certain defined circumstances, “split year” treatment is available to those arriving part-way through a tax year. The individual is consequently treated as UK tax resident only for the “UK part” of the tax year. Split years will count as full years for the purposes of the four-year FIG regime, meaning that, in practice, the favourable treatment could be available for less than four full tax years.
What action should I take before my arrival in the UK?
It is vital that individuals have a clear understanding of their status under the UK’s statutory residence test (for further information on which, please click here). This test is fact-specific and dynamic, and residence should be reviewed each UK tax year.
If an individual is UK resident in tax year 2024/25, they would still be relying on having ringfenced a pot of clean capital, which can be remitted into the UK without UK tax implications. Specific professional advice should be taken. It will also be important to ensure that the individual’s FIG arising in tax year 2024/25 are segregated from any FIG arising from 6 April 2025 onwards. For the same reason, those who have FIG from a previous period of UK residence (over ten years ago) should keep it separate from FIG arising after 5 April 2025.
Appropriate pre-arrival planning may also include the rebasing of assets, accelerating the receipt of income, the creation of offshore trusts or receipt of distributions from such. Given the changes announced to the treatment of so called “excluded property” trusts for UK inheritance tax purposes from 6 April 2025, advice should be sought on the appropriateness of creating such a trust in tax year 2024/25 or subsequently (for further information, please see “Non-dom reforms: the inheritance tax need-to-knows“).
In practice, it may be simpler for individuals to manage their UK day counts so that they are not treated as UK resident in tax year 2024/25 and thus have the benefit of the four-year FIG regime available to them for the full four-year period, starting from tax year 2025/26.
The analysis in this note is based on the new non-dom rules as announced in the Autumn Budget on 30 October 2024, as detailed in the government’s technical note published on 30 October 2024 and the draft legislation published on 7 November 2024. These have given clarity about the framework of the non-dom reforms, although technical changes may be introduced between now and the implementation of the rules on 6 April 2025.