The End of The Non-Dom Tax Regime: What’s Next?

After 225 years, the sometimes controversial non-domicile tax status is coming to an end. We outline the expected main changes below.  

What were the non-dom tax rules?

“Non-dom” is used to describe someone whose permanent home – their domicile – is outside the UK. A UK resident non-dom could choose to be taxed on the arising basis and pay tax on all income sources as they arose, or elect to be taxed on the remittance basis. The remittance basis allowed income and gains from overseas sources to be sheltered from UK taxation for up to 15 years of UK tax residence, provided those funds were not brought into or used in the UK. Non-doms also benefited from “excluded property” status on overseas assets, meaning that those assets were not subject to UK inheritance tax.  

The government considers that this regime has been too generous and is replacing it with new rules based purely on tax residence from 6 April 2025. This is intended to collect more tax, while still attempting to encourage wealthy individuals and new investment into the UK.  

Foreign Income and Gains (FIG) regime

A new “FIG” regime will be introduced, which will be available to individuals during their first 4 years of UK tax residence, after 10 consecutive years of non-residence. Foreign income and gains arising after 6 April 2025 can be received in the first 4 years of residence without any UK tax charge, whether they are remitted to the UK or not. After the initial 4 year grace period, all UK tax residents will be taxed on all worldwide income and gains as they arise. 

Years of UK tax residence before 6 April 2025 will also be taken into account, so existing UK tax residents who relocated to the UK less than 4 years prior may be eligible for the scheme and can benefit from the regime until the end of the 4th year of residence.  

The categories of income and gains that qualify for FIG treatment are broadly the same as those under the remittance basis, with a few exceptions and restrictions. Overseas Workday Relief will now be restricted to the lower of 30% of qualifying employment income or £300,000 per tax year.  

The FIG regime will be optional, so a formal claim must be made to HMRC each year via submission of a Self-Assessment tax return to designate all amounts which are being relieved. Claiming relief under the FIG regime will lead to the forfeiture of the personal tax allowance and capital gains tax annual exemption, so for some individuals comparison tax calculations may be needed each year to assess the most beneficial course of action.  

Overseas income and gains which benefited from the remittance basis of taxation before 6 April 2025 will still be taxed under the previous remittance rules if brought to the UK. However, these individuals may wish to consider the Temporary Repatriation Facility, noted below.  

Transitional Provisions

The government have confirmed that there will be some transitional arrangements to ease the impact and encourage non-doms to bring their funds to the UK: 

• Individuals who have previously claimed the remittance basis can make an election to designate their previously unremitted FIG that arose prior to the changes, and remit this at a reduced rate compared to the usual UK tax rates. This Temporary Repatriation Facility (TRF) will be available for a limited period of 3 years. The TRF rate will be 12% for the first 2 years (2025/26 and 2026/27) and 15% in 2027/28. 
• Once the election is made, the designated funds do not need to be remitted during the 3 year TRF period. They can be brought to the UK at any point without any further tax charges.  
• Some remittance basis users will be entitled to rebase certain foreign capital assets held at 5 April 2017, allowing substitution of the value at that date instead of original base cost.  
• The TRF will also be available to UK resident individuals who have previously claimed the remittance basis and receive a benefit from an offshore trust structure during the TRF period, where the benefit is matched to pre-6 April 2025 ‘stockpiled’ income or gains.  

It was reported in January 2025 that Chancellor Rachel Reeves was considering further changes to the upcoming legislation, but nothing has been announced to date.  

What about Inheritance Tax?

As a result of abolishing the concept of domicile, exposure to UK IHT will also be affected. From 6 April 2025, all individuals will be within the scope of IHT if they have been UK resident for at least 10 out of the last 20 tax years preceding a chargeable event. At this point, a ‘long-term resident’ will be liable to IHT on their worldwide assets. 

A ten-year IHT ‘tail’ will apply so that once an individual is within the scope of UK inheritance tax, they will remain so for up to 10 years after departing the UK depending on how long they were resident.  

UK assets will remain within the scope of IHT for all individuals whether they are UK tax resident or not. The Government has also confirmed that the current IHT Double Taxation Conventions and estate duty agreements with 10 countries will remain in place.  

Impact on offshore trusts

Under the previous rules, where an offshore trust was settled by a non-dom individual, trust protections applied which broadly resulted in the income and gains of the trust not being taxed in the hands of the settlor unless they received distributions from the trust. As a brief overview of the changes: 

• From 6 April 2025 UK resident settlors will be assessed on all income and gains within a trust structure on the arising basis, unless they qualify for the new four year exemption under the FIG regime.  
• The rules for excluded property will be changing and from 6 April 2025, non-UK settled assets will be within the scope of UK IHT if the settlor is long term UK resident at the time of the relevant event (or on death).  

This is a complex area, so those who are long-term UK resident and have offshore trust structures may need to consider whether any previous tax planning continues to be effective. 

Considering the impact of changes from 6 April 2025

If you are affected by the changes for non-doms, it is important that you are aware of the potential tax impact and that you take advantage of any transitional reliefs available. Anybody wishing to move to the UK to avail of the new FIG regime, or leave due to the tax impact of the reforms, will also need to carefully consider their options. Any planning opportunities will need to be weighed up against personal lifestyle and business circumstances.  

Our Private Client International Tax team have significant experience in this area and are perfectly placed to help with any UK residence or non-dom queries, including inheritance tax and the impact for offshore trust structures. If you have any questions about the changes to non-dom tax status please do not hesitate to get in touch with Fiona Rooney, Tom Andrew, Gunhild Dam or your usual AAB contact.