The Government is fundamentally reforming the taxation of non-UK domiciled individuals starting on 6 April 2025. The aim is to simplify the tax system but also bring non-doms’ tax contributions into the UK system, thus increasing the Treasury’s total tax revenue.
The changes will remove domicile as a relevant factor for income tax, capital gains tax and inheritance tax purposes. Replacing it is a residence based regime where long-term residents will be taxed less favourably than those who do not fall within the rule changes. The changes are relevant to both UK -domiciled and non-UK domiciled individuals, but the impact will be felt most by non-doms who are treated as long term residents in the UK.
From 6 April 2025 the remittance basis of taxation will be replaced with a new year four exemption applicable to foreign income and gains from that date onwards. This will be available to individuals during their first 4 years of UK tax residence after a period of 10 years of non-residence. Beyond this initial period, all UK residents will be taxed on their worldwide income and gains.
From 6 April 2025 a new residence based system will be introduced for inheritance tax purposes. Looking back over a 20 year period, if someone is resident for income tax purposes in the UK for 10 out of those 20 years, then they will be treated as a long term resident for inheritance tax and taxed on the value of their worldwide assets.
There are other transitional rules which will soften the impact of these changes on affected individuals. The changes will also impact trusts settled by non-UK domiciled individuals holding non-UK assets.
For UK domiciled individuals who have been (or will be) non-UK resident for 10 years, these changes may be favourable as they could be entitled to more tax reliefs in connection with their non-UK income, gains and assets.
These changes are significant. Affected individuals should seek advice to understand the implications of these reforms on their particular circumstances. If you would benefit from personal advice on the abolition of non-dom status, please get in touch to find out about our tax advisory services.
