Introduction
Significant changes are coming to how non-domiciled (non-dom) individuals are taxed in the UK. Starting April 6, 2025, the UK government will introduce reforms that impact how foreign income, capital gains, and inheritance tax are handled for non-doms. This comprehensive guide explains these changes clearly and engagingly, helping you understand how they may affect your financial decisions.
What is Non-Domicile (Non-Dom) Status?
Understanding Domicile
- Domicile refers to your intentions for permanent home and long-term residence.
- Tax authorities examine where your parents or grandparents were domiciled and where you plan to live permanently.
Who Qualifies as a Non-Dom?
- You’re considered a non-dom if you live in the UK, but your permanent home is in another country.
- Non-doms historically benefited from special tax rules that allowed them to minimize UK tax on foreign income and gains.
The Current Rules: Remittance Basis
How Non-Doms Paid Taxes Before
- Non-doms could choose the remittance basis, meaning:
- Foreign income and gains were only taxed if brought into the UK.
- After 7-9 years in the UK, a £30,000 annual fee was required to continue this option.
- After 15 of 20 years in the UK, non-doms became deemed domiciled, making all global income taxable in the UK.
Inheritance Tax (IHT) Benefits
- Non-doms only paid UK Inheritance Tax on UK-based assets.
- Foreign assets were considered “excluded property” and not subject to UK IHT.
The New Rules Starting April 6, 2025
Ending the Remittance Basis
- The remittance basis will be abolished.
- A new 4-Year Foreign Income and Gains (FIG) Regime will take its place.
Understanding the FIG Regime
- Individuals who become UK tax residents after 10 years abroad can:
- Avoid UK tax on foreign income and gains for 4 years.
- Freely transfer foreign income into the UK without extra tax.
- UK income will continue to be taxable.
Eligibility for FIG
- Available to those who:
- Are non-UK residents for the past 10 years.
- Have recently moved or returned to the UK.
Table: FIG Regime vs. Remittance Basis
| FEATURE | OLD REMITTANCE BASICS | NEW FIG REGIME |
|---|---|---|
| TAX ON FOREIGN INCOME | Only if brought to the UK | Exempt for 4 years |
| ANNUAL FEE | £30,000 after 7 years | NONE |
| DURATION | Until deemed domiciled | 4 years only |
Changes to Inheritance Tax (IHT)
New IHT Rules
- IHT will now be based on length of residency instead of domicile.
- Individuals who have lived in the UK for 10 out of 20 years will pay IHT on their worldwide assets.
Impact of Moving Abroad
- Foreign assets can remain taxable for up to 10 years after leaving the UK.
- The longer you live in the UK, the more your assets stay taxable.
Transitional Rules and Reliefs
Temporary Repatriation Facility (TRF)
- Encourages non-doms to bring foreign income into the UK by offering lower tax rates:
- 12% tax in 2025/26 and 2026/27.
- 15% tax in 2027/28.
Capital Gains Tax (CGT) Rebasing
- Allows foreign assets to be reset to their April 2017 value to reduce future CGT liability.
- Only available to previous remittance basis users.
The Impact on Long-Term Residents
Defining Long-Term Residents (LTRs)
- A long-term resident (LTR) is:
- Over 20 years old and
- Has lived in the UK for 10 out of the last 20 years.
IHT Tail for Long-Term Residents
- If an LTR leaves the UK, their foreign assets remain taxable for up to 10 years.
- This period increases gradually based on years of UK residency.
Table: Length of Residence vs. IHT Tail Period
| Years of UK Residence | IHT Tail Period |
|---|---|
| 10-13 years | 3 Years |
| 14 years | 4 Years |
| 15 years | 5 Years |
| 16 Years | 6 Years |
| 17 Years | 7 Years |
| 18 Years | 8 Years |
| 19 Years | 9 Years |
| 20 Years | 10 Years |
Who Will Be Most Affected?
Key Groups Impacted
- Current non-doms living in the UK.
- UK citizens living abroad are considering returning to the UK.
- Foreign nationals planning to move to the UK.
What Should You Do?
- Consult a tax advisor. These complex changes could significantly impact your finances.
- Evaluate how these changes might alter your tax liabilities and financial planning.
Final Thoughts
The UK’s overhaul of non-dom tax rules marks a significant shift in taxing foreign income and assets. Staying informed and proactive is crucial for adapting to these changes. Whether you’re a current non-dom, returning UK resident, or planning to move to the UK, understanding these reforms is vital for smart financial planning.
For expert advice tailored to your situation, contact us today.
