The old non-domicile regime (before 6 April 2025)
Before the introduction of the foreign income and gains regime, the previous rules for non-domiciled individuals in the UK allowed residents whose permanent home is outside of the UK to benefit from the ‘remittance basis.’
This system enabled them to pay tax only on their UK income and gains as they occurred, effectively exempting their foreign income and gains from UK taxation unless those funds were brought (or ‘remitted’) into the UK.
Additionally, these old rules protected Inheritance Tax on non-UK assets. The remittance basis offered tax-planning opportunities, particularly for individuals with significant offshore wealth.
However, the rules for non-domiciled individuals have been modified multiple times, and in the Autumn Budget of 2024, the government announced the abolition of the existing non-domicile regime. As a result, all UK tax residents will now be taxed on their worldwide income and gains on an arising basis, meaning they will be taxed when such income is realised or earned.
This change aligns the UK with international standards and removes the long-standing tax advantage previously enjoyed by long-term non-domiciles.
Get your current domicile status checked
The rules may have changed, but your non-domicile status remains vital for earlier years, the current tax year, and future years when the Transitional Repatriation Facility (TRF) may become beneficial.
Meet the new foreign income and gains regime.
A new residence-based test has replaced the old remittance basis regime.
This new regime will be available for four years, starting from April 6, 2025, for individuals who have been non-UK residents for at least the previous ten years or during their first tax year of becoming a UK resident. Under the new regime, individuals can enjoy a 100% exemption from UK tax on foreign income and gains, with no restrictions on remittance.
This means they can bring their foreign income and gains into the UK without triggering any tax for the first four years.
After four years, individuals will be fully liable for UK tax on their worldwide income and gains, just like all other UK residents.
To benefit from this regime, individuals must make an election and be aware of their UK tax return filing requirements. It is important to consider how this new regime interacts with existing double tax treaties and how taxation may revert to the country from which the income or gains are derived.
Mark Dawes, Tax Partner, explains that “the FIG regime is particularly attractive for business owners or foreign professional athletes operating on shorter-term contracts within the UK, as they will no longer need to worry about the UK tax consequences of their overseas income or investments for up to 4 tax years from their date of arrival.”
What are the transitional reliefs for current non-domiciles?
The government has introduced transitional arrangements to alleviate the tax impact.
Temporary Repatriation Facility (TRF)
The TRF applies to foreign income and gains accumulated before 6 April 2025. It allows individuals to bring their foreign income and gains into the UK between 6 April 2025 – 5 April 2027 at a reduced tax rate of 12%, or at a rate of 15% for the period 6 April 2027 to 5 April 2028. This measure aims to encourage remittances of historic wealth under a favourable tax rate. After 5 April 2028, any remittances will revert to being taxed at the taxpayer’s marginal rate, which could be up to 45% as things currently stand.
Asset re-based
Eligible individuals who have previously claimed the remittance basis may be allowed to rebase their foreign assets to 5 April 2018 values for capital gains tax purposes.
Personal Asset Cleanse
Increased flexibility is offered to segregate mixed funds (clean capital vs income and gains), allowing for easier and more tax-efficient remittances.
This provides an excellent opportunity for tax planning if there is an intention to bring overseas monies to the UK within the next 3 years, especially if there will be overseas income or gains to consider during the same timeframe.
Shifting to a residency-based inheritance tax system
Before 6 April 2025, inheritance tax (IHT) was determined by an individual’s domicile status. UK domiciles are taxed on their worldwide estate, while non-domiciles are taxed only on their UK assets.
The only exception is if you have been a UK resident for 15 of the last 20 years, as you are then deemed domiciled.
Starting from 6 April 2025, a new residence-based IHT regime is now in play. This new rule applies to anyone who has been a UK resident for at least 10 of the past 12 years, and IHT exposure continues for 10 years after leaving the UK.
However, this change has implications for long-term residents and returning Brits who may have accumulated assets offshore, as it could subject non-UK assets to UK tax once they move abroad.
“Again, careful planning is paramount” states Mark. “It is also advisable to maintain wills in each jurisdiction to cover the assets within that jurisdiction, as often a lack of a will can cause lengthy delays in obtaining probate or the ability to distribute any such assets.”
Removing Trust Protections
From 6 April 2025, all trust protections for UK resident settlors will be removed. This means that income and gains from the trusts will be taxed on the settlor as they arise. The only exemption available, if eligible, will occur during the four-year FIG relief window.
What planning opportunities are available?
The introduction of the FIG regime offers individuals several tax-planning possibilities:
- Consider remitting offshore income during the Transitional Relief window (2025-28) at 12%
- Utilise rebasing and asset cleansing
- Structure overseas income streams
- Restructure and reassess trusts, exploring alternative asset-holding structures
- If leaving the UK, be careful of the 10-year tail for IHT
- Consider residency planning, life insurance or other estate planning measures to avoid IHT risks
It is crucial to seek professional guidance to understand the tax implications of the new FIG regime for non-domiciled individuals and to navigate these changes specific to your circumstances.
Contact our tax team to discuss your individual requirements and arrange a consultation with us today.
