Abolition of the Resident Non Domicile Status – How will this affect you?

From April 2025, the current tax system for non-UK domiciled individuals will be abolished. This will be replaced by a residency-based system which will tax individuals on their worldwide income and gains.

Rumours regarding the abolition of the current Resident Non-Domicile system have been circulating for a while. Many feel that the concept of domicile is outdated, and that the current system incentivises individuals to keep income and gains offshore. The government’s aim by introducing the new residency-based system is to continue to modernise the UK tax system and follows the 2017 domicile reforms which saw the introduction of the deemed UK domicile rules.

Whilst there is no doubt that the new system will simplify the rather complicated existing remittance basis system, particularly for those individuals where a remittance basis claim involves the analysis of numerous offshore bank accounts, other individuals will be disappointed to learn that foreign income and gains can no longer be sheltered from UK tax under the remittance basis potentially landing these individuals with higher UK tax liabilities.

Whilst the rules will come into effect from 6 April 2025, transitional rules will apply for those UK resident and non-UK domiciled individuals already living in the UK.

New arrivals to the UK

From 6 April 2025, new arrivals to the UK who have a period of 10 consecutive years of non-residence will benefit from a 4-year period during which full tax relief will apply on foreign income and gains, and no UK tax will be due on any foreign income and gains even if the funds are brought in to the UK. Following this initial 4-year period, individuals will be liable to report worldwide income and gains.

HMRC have confirmed that Overseas Workday Relief will still be available under the new system, in a simplified format. Overseas Workday Relief provides income tax relief for earnings from employment duties carried out overseas for the first three tax years of residence. Under the current rules, such earnings cannot be remitted to the UK. We understand that under the new rules, the restriction on remitting these earnings to the UK will be removed.

UK resident and non-UK domiciled individuals already in the UK

Individuals who are already in the UK who have been tax resident for fewer than 4 tax years will be able to benefit from this relief until the end of their 4^th year of residence.

Individuals who are already in the UK who have been tax resident for more than 4 tax years will be subject to the following rules.

• In 2025/26, a temporary 50% reduction will apply in respect of foreign income subject to UK tax. This will apply to non-UK domiciled individuals who will lose access to the remittance basis
• For disposals taking place after 6 April 2025, assets can be re-based to their value at 5 April 2019. This will apply to non-UK domiciled individuals who have claimed the remittance basis. In effect, this means that qualifying individuals will only be subject to tax on gains made on assets from 5 April 2019 onwards
• For foreign income and gains which arose prior to 6 April 2025, individuals will be able to remit this to the UK at a reduced rate of 12% under the ‘Temporary Repatriation Facility’. This will apply for 2025/26 and 2026/27
• Foreign income and gains that arose in protected non-resident trusts prior to 6 April 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than 4 years. From 6 April 2025, all protections on non-resident trusts from this date will be removed and any foreign income or gains arising from such trusts will be taxable in the UK

Inheritance Tax

Under the current tax system, Inheritance Tax (IHT) is payable based on an individual’s domicile status. UK or deemed UK domiciled individuals are subject to IHT on worldwide assets, whereas individuals domiciled overseas are subject to IHT on UK situs assets only. The new changes from April 2025 will also move to a residency-based system, the details of which will be published following a government consultation. The government has, however, confirmed that the treatment of non-UK assets settled into a trust by a non-UK settlor prior to April 2025 will not change and these assets will remain outside the scope of UK IHT.

How will the changes affect you?

The abolition of the Resident Non-Domicile rules will have a significant impact on individuals’ tax positions over the coming years. For those individuals already in the UK, the transitional period will allow for foreign income and gains to be brought in to the UK on a reduced tax rate and we recommend that the position for these individuals is reviewed to fully benefit from these transitional rules.

Get in Touch

It is never too early to start planning and whilst we await final legislation in respect of the above changes, please do not hesitate to get in touch with Mark Moore or Marina Trinchese for a preliminary conversation so you can start planning for your personal tax position.

Photo by Alev Takil on Unsplash