Significant changes are due to come into effect for non-UK domiciled individuals – also known as non-doms. From 6th April 2025, the current rules for the taxation of non-UK domiciled individuals will end to be replaced by a new residence-based foreign income and gains (FIG) regime. There is a transition provision for those already working under the existing rules.
At the same time of these reforms, significant changes will be made to inheritance tax and to the taxation of trusts. With a few weeks to go until the changes are in place, take time to review your personal circumstances and ensure you are aware of what is needed.
What is a non-dom?
“Non-dom” describes a UK resident whose permanent home – or domicile – for tax purposes is outside the UK.
It refers to a person’s tax status, and has nothing to do with their nationality, citizenship or resident status – although it can be affected by these factors.
At the moment, a non-dom can opt to only pay UK tax on the money they earn in the UK under a remittance basis regime. They did not have to pay tax to the UK government on money made elsewhere in the world (unless they pay that money into a UK bank account). This is now changing.
Here is an overview of the upcoming UK non-dom reforms.
Income Tax and CGT Changes – non-dom reforms
From 6 April 2025, non-UK domiciled individuals will be subject to worldwide taxation – unless they qualify for the transitional FIG regime. They will also be subject to long-term residence tests as the basis for Inheritance Tax.
FIG is available for four years starting from 6 April 2025 or the first tax year in which the individual becomes a UK resident, if later.
This means a four-year exemption period for foreign income and gains for individuals who have been non-resident for at least 10 years, this includes UK-domiciled individuals who have been non-resident for 10 years and return to the UK.
To claim an exemption to worldwide taxation under FIG, a self-assessment tax return is required. Be aware that claimants lose foreign loss relief and personal allowances for that tax year.
Trust Protections Withdrawn – non-dom reforms
From April 2025, “trust protections” for non-UK domiciled people is no longer available. This means that trust income and gains are subject to relevant taxation if they are a UK resident, unless they are within the FIG regime.
Offshore anti-avoidance rules are being modified in tandem with these changes, including adjustments to the benefits charge and the concept of “tainting.”
Temporary Repatriation Facility – non-dom reforms
This is available for three years between 6th April 2025 to 5th April 2028. It allows non-doms who previously used the remittance basis to bring funds earned pre-6 April 2025 into the UK at a special tax rate (12% until 5 April 2027; 15% until 5 April 2028). No additional tax is levied if funds are brought to the UK after being designated under this facility.
A consideration is that it may be worthwhile claiming remittance basis in 2024/25 even if it is not the most efficient taxation basis as it means that an individual is eligible for transitional rules in later years.
Capital Gains Tax Rebasing – non-dom reforms
Remittance basis users may elect to “rebase” certain foreign assets to their 5th April 2017 market value subject to specific conditions. This can reduce or eliminate capital gains accrued before 5 April 2017.
Again, an individual should consider claiming remittance basis in this current 2024-2025 tax year, in order to be eligible to rebase
HB TOP TIPS:
These changes are a major shift away from domicile-based reliefs. Non-UK domiciled and returning UK-domiciled individuals should review their personal and business circumstances promptly to optimise the available reliefs and manage the transition to the new regime. Before 6th April 2025, we recommend you talk to your tax advisor and plan for these changes. Considerations should cover:
- Making best use of the current regime: Consider the timing of dividends, disposals, and offshore restructurings under the existing, more generous remittance regime and excluded property rules
- Reviewing your asset holdings and offshire structures: Adapt investments and holding structures to prepare for worldwide taxation, or to use potential motive-defence provisions.
- Considering the temporary repatriation facility: Weigh the advantage of remitting pre-6 April 2025 income/gains at 12–15% tax, possibly requiring liquidity or trust distributions in advance.
- Remaining compliant: Comply with FIG claim requirements and prepare for extended reporting obligations under worldwide taxation.
Inheritance Tax Changes – non-dom reforms
The reforms significantly change the inheritance tax landscape for non-domiciled UK residents. We strongly recommend reassessing your individual position and proactively start planning any tax implications. Here is an overview of the inheritance tax (IHT) changes that will affect non-UK domiciled individuals from 6th April 2025:
Non-dom reforms: Key Changes:
As with income tax and CGT, the concept of domicile will be replaced by a “long-term resident” concept. Individuals will qualify as long-term residents after being UK residents for 10 out of the previous 20 years.
Once classified as long-term residents, individuals’ worldwide assets will fall within the UK’s inheritance tax scope, starting from the 11th year of UK residency. Previously, worldwide assets were subject after 15 years of UK residency.
Even after leaving the UK, a “tail” period will keep individuals’ worldwide assets within UK inheritance tax scope. The tail period ranges from 3 to 10 years, depending on the length of UK residency prior to departure.
Trusts and Inheritance Tax – non-dom reforms
Assets within trusts will incur periodic inheritance tax charges (up to 6%) on 10-year anniversaries and on capital distributions.
Trust assets, where the settlor is a beneficiary, may be included in the settlor’s estate at death, taxed up to 40%, unless settled before 30th October 2024. This is known as Gift with Reservation of Benefits Rules.
Transition Provisions – non-dom reforms
Non-doms who aren’t resident in the UK in the tax year 2025-2026, and who don’t return to the UK, will benefit from a fixed 3-year tail period, regardless of the duration of their previous residency. This is provided they maintain non-UK domicile status at and after 30th October 2024.
Trusts settled before 30th October 2024 will have partial protection from gift reservation rules, although relevant property charges may still apply.
Estate Treaties – non-dom reforms
Existing estate treaties will remain unchanged, preserving the relevance of domicile under common law for treaty protections.
HB TOP TIPS:
We recommend you talk to your tax advisor and plan for these changes. Considerations should cover:
- Succession Planning: Re-evaluate whether traditional structures such as trusts still are the best option under the new regime. You may wish to consider alternatives such as family investment companies and/or partnerships.
- Lifetime Gifts: Consider accelerating lifetime gifting of excluded property prior to 6th April 2025.
- Insurance: Consider obtaining life insurance to cover potential inheritance tax liabilities.
- Review Arrangements: Evaluate worldwide wills, spousal exemptions, liquidity needs, and mobility.
It is complex but necessary to demonstrate non-UK domicile and comply with new rules, so careful planning and professional advice is imperative. This is particularly important for individuals leaving the UK after April 2025, who must carefully manage their residency status, keeping all relevant domicile documentation. Please contact the HB tax team today for further guidance.
The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above
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