Reforming the UK Resident Non-Domicile regime

Individuals considered non-domiciled (non-doms) have their permanent home outside the UK. The existing non-dom tax regime offers these UK residents a choice to adopt the remittance basis for taxation, allowing them to pay tax on UK earnings as any UK domiciled person would, but only pay tax on their foreign income or gains (FIG) when these are brought into the UK.

The upcoming reform, effective from April 2025, will end the remittance basis of taxation for non-doms, introducing a more straightforward and equitable system. New foreign income and gains (FIG) arising from April 2025 will no longer receive preferential tax treatment based on domicile status.

Newcomers with a history of 10 consecutive years of non-residence will receive complete tax relief on FIG for a four-year period of UK tax residency starting afterward, during which these funds can be brought to the UK tax-free.

Those already tax resident for less than four years and qualifying for this scheme will enjoy this relief until their fourth tax year ends. This approach simplifies the process, allowing individuals to bring FIG into the UK without a tax charge, promoting their expenditure and investment within the UK.

For the first three years of UK tax residency, non-doms taxed on the remittance basis qualify for Overseas Workday Relief (OWR), which will continue, albeit in a simplified form, under the new regime.

After the transition period, all individuals, regardless of domicile, who have been UK tax residents for more than four years, will pay UK tax on any new FIG, aligning with the treatment of other UK residents.

This revised scheme is more favorable than in countries without a similar system and competitive with those that have similar arrangements for newcomers.

Inheritance tax (IHT) liability also hinges on domicile status and asset location. Currently, non-UK assets of non-doms are exempt from IHT until they have been UK residents for 15 out of the last 20 tax years. The government plans to consult on transitioning IHT to a residency-based system. To ensure certainty for taxpayers, non-UK assets placed into a trust by non-UK domiciled individuals before April 2025 will remain outside the UK IHT regime. The details of the new system’s operation are still under consideration, with plans for future consultation. Read more about Estate Planning & Inheritance Tax (IHT).

To ease the transition to this new, simplified system for current non-doms, the government is introducing specific transitional measures, including:

• A one-time 50% reduction on personal foreign income tax for 2025-26 for those losing access to the remittance basis and not eligible for the new 4-year FIG exemption.
• A re-basing of capital assets to their value as of 5 April 2019 for sales after 6 April 2025 by current non-doms who have used the remittance basis, allowing taxation only on gains since that date.
• A Temporary Repatriation Facility allowing non-doms to bring pre-6 April 2025 foreign income and gains to the UK at a 12% tax rate for the 2025-26 and 2026-27 tax years.

While new FIG arising in non-resident trusts after 6 April 2025 will be taxable, FIG generated before this date will remain untaxed unless distributed or benefiting UK residents who have been here for more than four years.