Changes to non-domiciled tax status to go ahead

The previous government had planned to end non-domiciled tax status in the Spring Budget, replacing it with a 4-year foreign income and gains (FIG) regime. The new government has announced their intention to continue with these plans while also ending some advantages for existing non-domiciled individuals.

What the change in tax status will mean

From 6 April 2025, preferential tax treatment based on domicile status will be removed for all new FIG. This means that foreign income and gains will be taxable in the UK if you are classed as residing in the UK, not just those included under the remittance basis.

A relief will be available for new arrivals

New arrivals to the UK will receive 100% relief in their first four years of tax residence, provided they have not been a UK tax resident in any of the 10 consecutive years prior to their arrival.

Transitional measures

It was previously announced that there would be a 50% reduction in foreign income subject to tax for the first year for those losing access to the remittance basis. However, the government has now stated that this will not occur.

The government has also outlined transitional arrangements for FIG that arose before 6 April 2025 and is remitted to the UK afterward—it will be taxed upon remittance as per the current rules. A new Temporary Repatriation Facility (TRF) will be available, allowing for a reduced tax rate on a remittance for a limited period after the remittance basis ends.

Changes to inheritance tax included

From 6 April 2025, the government plans to replace the existing domicile-based system for inheritance tax (IHT) with a new residence-based one. The proposed test for whether non-UK assets are within the scope for IHT will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event occurs. A person will also remain within scope for 10 years after leaving the UK.

Additionally, there are plans to end the use of Excluded Property Trusts that keep assets out of the scope of IHT. Details on how the rules will apply to existing trusts will be provided at the Budget on 30 October.

If you are concerned about how these changes will affect you and your tax obligations, GET IN TOUCH WITH OUR WIMBLEDON ACCOUNTANTS at any time. We will be happy to discuss this with you and provide personalized advice.

See: 2024 Non-UK Domiciled Individuals Policy Summary