On 6 April 2025, significant changes to the UK tax regime for non-UK domiciled individuals (“non-doms“) and future arrivers into the UK took effect. These reforms were initially announced by the Conservative government in March 2024 but were confirmed, extended and enacted by the Labour government after their election victory in July 2024.
As non-doms and their advisors adjust to the new regime, we provide a high-level summary of the key rules and how the landscape has changed for anyone who is already UK tax resident or becomes UK tax resident in the future. For more detailed information, please download our guide or visit the non-dom section of our website.
Previous non-dom regime
The previous non-dom regime, including the “remittance basis” of taxation, has its origins from 1799. The basic principle for income tax and capital gains tax (“CGT“) purposes was that non-doms were taxed on their foreign income and gains (“FIG“) only if they brought them to the UK. From 2008, non-doms had to pay an annual charge to use the remittance basis after seven years of UK residence. Further changes were made in 2017 so that a non-dom would be deemed to be UK domiciled for UK tax purposes after fifteen years of UK residence. There was also a protection regime for FIG within offshore trusts set up by a non-dom, such that the FIG could not generally be attributed to the non-dom for UK tax purposes. The basic principle for inheritance tax (“IHT“) purposes was that, provided an individual was not domiciled in the UK under general law and not deemed domiciled, their non-UK assets generally remained outside the scope of IHT. If a non-dom put assets into an offshore trust, these assets generally remained excluded from IHT (known as an “excluded property trust” – “EPT“) even if the non-dom later became UK domiciled or deemed domiciled.
The 2025 non-dom reforms
Four-year exemption for income and gains: the remittance basis has been abolished and replaced with a new four-year residence-based exemption regime for FIG. This applies to individuals who become UK resident after at least ten years of non-UK residence. During the first four years, they do not pay UK tax on their FIG, including distributions from non-UK resident trusts. There is no charge for access to this exemption regime. After four years, however, if such individuals remain in the UK, they are subject to UK tax on their worldwide income and gains.
Transitional rules for income and gains: for FIG arising before 6 April 2025 and remitted to the UK after this date, those individuals who were non-doms under the old regime can elect to pay UK tax at a reduced flat rate under the Temporary Repatriation Facility (“TRF“) for tax years 2025/26, 2026/27, and 2027/28. The TRF rates are 12% in 2025/26 and 2026/27, and 15% in 2027/28. This compares with alternative rates up to 45% if the TRF was not used. Non-doms can also elect to rebase the value of non-UK assets for CGT purposes to market value as at 5 April 2017, reducing the chargeable gain upon disposal after 5 April 2025, subject to conditions.
Offshore trusts and income and gains: the FIG protection regime for offshore trusts has been abolished and FIG will now be taxed on the UK resident settlor in many cases.
Residence-based system for IHT: liability to IHT is now based on residence rather than domicile. Individuals who have been UK resident for ten or more of the preceding 20 tax years (a “long-term resident” – “LTR“) are subject to IHT on their worldwide assets; otherwise, those who are not LTR, are generally only subject to IHT on their UK assets (as non-doms were under the previous regime). There is a “tail” period of IHT exposure after an LTR individual leaves the UK, ranging from three to ten years.
Offshore trusts and IHT: offshore trusts that are EPTs are now subject to the new residence-based IHT rules. If the settlor is LTR, the trust assets are now within scope of IHT and not excluded. This means potential IHT charges at the trust’s ten-year anniversary and on trust distributions. Offshore trusts set up after 30 October 2024 also face double IHT charges if the settlor can benefit from the trust and is LTR. Transitional rules for EPTs in existence on 30 October 2024 should relieve this double IHT risk.
Conclusion
The reforms significantly alter the UK tax landscape for existing non-doms and future UK arrivers in respect of their FIG and IHT treatment. Professional advice is crucial to understand the impact and explore planning options. The four-year FIG regime is less competitive than similar regimes in other European jurisdictions, but may attract individuals for short-term residence. The new IHT regime may also potentially prompt some long-term residents to reconsider their location options.
For further information, please contact a member of the Private Client Offshore team.
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.