Changes to the Tax Rules for Non-Domiciles

Understanding Domicile and Its Tax Implications

The UK tax system has long allowed individuals to be taxed differently depending on their domicile status. This has provided opportunities for non-domiciled taxpayers to make tax savings on overseas income and assets. However, from 6 April 2025, significant changes to the tax rules for non-domiciles will take effect, replacing the current system with a residence-based approach.

What Is Domicile?

Domicile refers to an individual’s permanent home and is distinct from nationality, residence, or citizenship. It is typically acquired at birth from the individual’s father (or mother if the father is unknown). While it is possible to change domicile, this generally requires moving to another country and severing ties with the previous one.

Current Tax Implications of Domicile

Domicile status has played a key role in both Income Tax and Inheritance Tax (IHT):

• Income Tax:

  • UK residents who are UK domiciled are taxed on their worldwide income as it arises.
  • UK residents who are non-UK domiciled can opt for the remittance basis, meaning they only pay UK tax on income brought into the UK.

• Inheritance Tax (IHT):

  • UK domiciled individuals are subject to IHT on their worldwide estate.
  • Non-UK domiciled individuals only pay IHT on UK assets.

Changes to the Tax Rules for Non-Domiciles

From 6 April 2025, the concept of domicile for tax purposes will be abolished, and a residence-based system will be introduced.

Changes to Income Tax

• The remittance basis will be scrapped and replaced with a new 4-year Foreign Income and Gains (FIG) regime.
• Individuals who move to the UK after at least 10 years of non-UK residence will not pay tax on foreign income and gains for their first four tax years.
• After the four-year period, they will be taxed on their worldwide income and gains like any other UK resident.
• Those who have already been UK resident for less than four years (following 10 years of non-UK residence) as of 6 April 2025 can use the FIG regime for any remaining qualifying years.

Changes The Temporary Repatriation Facility (TRF)

• This facility allows individuals who previously used the remittance basis to remit untaxed foreign income and gains at a lower tax rate.
• The tax rate on designated funds will be:
  • 12% for 2025–26 and 2026–27
  • 15% for 2027–28
• Individuals can choose when to remit designated amounts to the UK, even after the TRF window closes.

Changes to Overseas Workdays Relief (OWR)

• OWR will continue but will be based on residence and limited to four years.
• An annual cap will apply, set at the lower of:
  • 30% of qualifying employment income, or
  • £300,000 per tax year.

Changes to Inheritance Tax

• From 6 April 2025, a residence-based IHT system will apply.
• Individuals who have been UK resident for at least 10 of the past 20 tax years will be classified as Long-Term Residents.
• Long-Term Residents will be subject to IHT on their worldwide assets, similar to UK-domiciled individuals.
• A “tail provision” means this IHT liability continues for up to 10 years after an individual leaves the UK, depending on their period of UK residence.

How We Can Help

These changes to the tax rules for non-domiciles mark a fundamental shift in the UK tax system. If you are a non-domiciled individual, it is essential to review your tax position ahead of April 2025.

At Lewis Brownlee, our tax specialists can help you:

• Understand how these changes affect your personal tax situation.
• Plan for the transition to a residence-based system.
• Explore tax-efficient ways to manage foreign income, remittances, and inheritance planning.

If you need expert advice on navigating the new tax rules for non-domiciles, get in touch with our team today.