As of the start of the new tax year (6 April 2025), there are major changes to the existing non-domicile (non-dom) rules, which could have a significant impact on non-UK nationals who have lived in the UK for a number of years, as well as UK residents wishing to move abroad permanently. These changes are designed to phase out the long-standing non-dom tax advantages that have allowed individuals to exclude foreign income, gains, and assets from the scope of UK tax.
Non-doms are people who live in the UK but have a permanent home (domicile) in another country. For years, this meant that individuals could pay less/no tax in the UK on foreign income and capital gains, unless they brought those funds (remitted) to the UK. It also exempted overseas assets held from UK inheritance tax (IHT). This system attracted wealthy individuals from abroad to settle in the UK.
For UK citizens, it has often been difficult to obtain “non-dom” status as HMRC will usually take the view that, no matter how long an individual has remained abroad, their true “home” is still in the Uk and therefore remain UK domiciled.
The new rules will look to tax individuals based on their residence status, rather than their domicile. Starting in April 2025, non-doms will no longer be able to claim the remittance basis indefinitely. After a certain period, non-dom individuals will be taxed on their worldwide income and gains, just like other UK tax residents.
One of the most significant changes is that individuals who have lived in the UK for a significant amount of time will no longer get advantageous tax treatment for offshore income and assets. HMRC will tax individuals based on how long a person has been a UK resident, rather than on their domicile status.
The new system introduces a ‘Foreign Income and Gains’ (FIG) regime for people returning to the UK after living abroad. If someone has been a non-UK tax resident for at least 10 years, they can use this regime for up to four years upon their return. During this period, they will not pay tax on foreign income or gains unless they bring those assets into the UK. After those four years, their worldwide income and gains will be taxed like that of any other UK resident.
Another new concept and opportunity for non-doms is the TRF. This allows individuals to bring foreign income and assets into the UK at a reduced tax rate. For income or gains that have not been brought into the UK by April 2025, individuals can move funds to the UK at a tax rate of 12% during the 2025/2026 & 2026/27 UK tax years, rising to 15% in 2027/2028. This offers a window for non-domicile to bring foreign income and gains back into the UK with a reduced tax rate, but it is only available for assets held before the new rules take effect.
In addition to changes in income and capital gains tax, HMRC are also changing the inheritance tax (IHT) rules. As of 6 April 2025, UK residents will be liable for IHT on global assets if they have been a UK resident for 10 out of the last 20 years. This is a significant change, as it means that long-term UK residents will be taxed on their worldwide assets when they pass away, including those held abroad.
If someone leaves the UK after being a resident for a long period of time, HMRC can still tax their estate for a number of years. The length of time UK inheritance tax applies after someone leaves depends on how long they have lived in the UK. In short, individuals who have been UK residents for 10 years or more will have ongoing tax obligations for years, even after they leave.
Assets situated in the UK will always be subject to IHT, regardless of an individual’s residence status. However, these changes mark a significant shift in how the UK taxes foreign income, gains, and assets. Non-Domicile will no longer have the same tax advantages, and their worldwide income and wealth will become subject to UK tax once they meet certain residence bases criteria. While these changes may be challenging for those who have relied on the non-dom system previously, there are still opportunities to minimise UK tax exposure with the correct planning in place, particularly with the TRF and the FIG regime.
One positive planning point is that for those individuals intending to retire or move abroad permanently, there is now a clear understanding, set out in legislation, that after a maximum of ten years’ residence abroad as UK individual can be regarded as non-UK domiciled.
With the major changes to the existing non-domicile (non-dom) rules it is important to gather the correct tax advice to avoid costly mistake. Please contact ETC Tax for further guidance.
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