From 6 April 2025, the UK is removing the concept of domicile status from the tax system and will implement a new residence-based regime.
At a glance
From 6 April 2025, the UK will:
- Remove preferential tax treatment based on Domicile Status for all new Foreign Income and Gains (FIG) that arise from 6 April 2025
- Repeal the Remittance Basis.
- Create a new Residence-based regime:
- New arrivals to the UK in their first four years of tax residence receive 100% relief on Foreign Income and Gains (FIG)
- Conditional on not being UK tax resident in any of the 10 consecutive years before their arrival.
- Remove the protection from tax on income and gains arising within settlor-interested trust structures.
- This will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four-year FIG regime.
- The government is reviewing offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation, to modernise the rules, although there will be no changes until the 2026/27 tax year.
- A form of Overseas Workday Relief (OWR) will be retained.
Transitional arrangements for affected non-UK domiciled individuals
- UK resident individuals who are ineligible for the four-year FIG regime (or who choose not to make a claim for a tax year) will be subject to Capital Gains Tax (CGT) on foreign gains in the normal way.
- Transitionally, for CGT purposes, current and past remittance basis users will be able to rebase foreign capital assets they hold to their value at the rebasing date when they dispose of them. The government is considering the appropriate rebasing date and will set this out in the Budget.
- Any FIG that arose before 6 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK, as is the case under the current rules. This includes remittances of pre-6 April 2025 FIG for those eligible for the new four-year FIG regime.
- A new Temporary Repatriation Facility (TRF) will be available for individuals who have been taxed on the remittance basis. Individuals who have previously claimed the remittance basis will be able to remit FIG that arose prior to 6 April 2025 and pay a reduced tax rate on the remittance for a limited time after the remittance basis has ended. The rate and the length of time that the TRF will be available will be set to make use as attractive as possible.
New residence-based regime for Inheritance Tax (IHT)
Inheritance Tax (IHT) is currently a domicile-based system. The government intends to replace this with a new residence-based system from 6 April 2025. This will affect the scope of property brought into UK IHT for individuals and trusts.
- A basic test for whether non-UK assets are in scope for IHT from 6 April 2025 will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event (including death) arises, with provision to keep a person in scope for 10 years after leaving the UK.
- The government will engage further with stakeholders on the operation of the new test so that any refinements can be considered fully. IHT charges arising on deaths occurring before 6 April 2025 will be unaffected by these changes and will be charged according to the existing rules.
Trusts and IHT
The use of Excluded Property Trusts to keep assets out of the scope of IHT will cease.
- The government recognises that trusts will already have been established and structured to reflect the current rules, so is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes.
- Confirmation of these new rules and their detailed application, including transitional arrangements for affected settlors, will be published at Budget, following external engagement.
The government will not have a formal policy consultation on moving to a residence-based system for IHT. Instead, it will review stakeholder feedback provided following the Spring Budget and officials will carry out further external engagement over the summer on IHT policy design.
Next steps
Further details on the separate engagement sessions on IHT and OWR, will be published on gov.uk in due course.
As part of the legislative process, the government values external comment and scrutiny and wants to ensure that interested parties have an opportunity to share views and feedback on the details of legislative provisions. To assist in obtaining technical comments on the draft legislative provisions, the government will share plans to engage on gov.uk in due course.
Useful guides on this topic
Client briefing on Reform to the Non-Domiciled Individuals' regime
It was proposed at Spring Budget 2024 that the non-domicile tax regime and current version of the Remittance Basis will be abolished on 5 April 2025 and replaced with a new regime. We look at the latest proposals.
On the current rules
Non-domicile status, deemed domicile & tax
Who is non-UK domiciled? What does this mean for UK Income Tax, Capital Gains Tax and Inheritance Tax? What reliefs are available to non-doms?
Remittance basis (overseas income).
What is the remittance basis? Who can claim it and when? What are the advantages of claiming the remittance basis and how much is the remittance basis charge?
Offshore Company holding UK Residential Property: tax issues
Is it still worth holding UK property via an offshore company? How are these properties taxed? Should I bring my offshore company into UK corporation tax? What are the tax issues of repatriation?
SRT: Statutory Residence Test
What is the statutory residency test? Why is it important and how does it work?
Non-Resident Trusts
When is a trust non-resident? What are the UK tax implications of a non-resident trust? What are the UK tax implications for any beneficiaries? What are the UK administrative requirements for a non-resident trust?
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