In the October 2024 UK Budget, Chancellor Rachel Reeves unveiled significant tax reforms affecting non-domiciled individuals (non-doms) and expatriates.
These changes, effective from 6 April 2025, mark a substantial shift in the UK’s tax landscape.
What is a “non-dom”?
Domicile is a legal concept that refers to the country which an individual considers to be their permanent home. Everyone takes on a “domicile of origin” when they are born – the rules are so old that this is determined by their father’s domicile if their parents were married when they were born, or their mother’s if they were not! A domicile of origin is only lost if a person takes on a “domicile of choice.”
Unlike the concept of residence which can change quite easily (and change from year to year) it is actually very hard to show that someone has taken on a domicile of choice. Someone can live overseas for many years but still be considered not to have lost their domicile of origin. Most people of course retain their domicile of origin for life.
Because of the subjective nature of the question, it is not hard to see why the question of domicile has been a controversial one for many years.
How does domicile affect a person’s tax position currently?
There are broadly two areas where domicile can impact on an individual’s tax position under the current rules.
Income tax & capital gains tax – Historically, non-doms could opt to be taxed only on UK-sourced income and gains, with foreign income and gains taxed only upon remittance to the UK – the so-called remittance basis. This option fell away if they lived in the UK for (broadly) more than 15 years or had originally been born in the UK.
Inheritance tax (“IHT”)
If an individual is UK domiciled, they are subject to UK IHT on their assets wherever they are located in the world. If they are not UK domiciled however the UK IHT net catches only their assets which are located in the UK. As with income tax a person becomes deemed to be UK domiciled if they live in the UK for more than 15 years.
What are the key changes?
The most notable reform is the abolition of the remittance basis of taxation. From 6 April 2025, this regime will be replaced by a residence-based system. Under the new Foreign Income and Gains (FIG) regime, individuals who have been non-UK resident for at least ten consecutive tax years will enjoy a four-year exemption from UK tax on their foreign income and gains upon becoming UK residents. This means new arrivals can bring overseas earnings into the UK without incurring tax during this period.
Additionally, transitional provisions have been introduced for existing non-doms:
- Temporary Repatriation Facility (TRF): This allows individuals who previously claimed the remittance basis to repatriate pre-6 April 2025 foreign income and gains at reduced tax rates—12% for the first two years and 15% in the third year.
- Asset Rebasing: Eligible individuals can rebase their foreign assets to their market value as of 5 April 2017, potentially reducing capital gains tax liabilities on future disposals.
Furthermore, the inheritance tax (IHT) regime will transition to a residence-based system. From 6 April 2025, individuals who have been UK residents for at least ten out of the previous twenty tax years will be deemed long-term residents and subject to IHT on their worldwide assets.
If an individual leaves the UK after having been a long-term UK resident they will remain in the UK IHT net for a period ranging between 3 and 10 years depending on how long they spent in the UK.
These reforms represent a pivotal shift in the UK’s approach to taxation for non-doms and expatriates. While the majority of changes are clearly aimed at bringing more foreign income and gains into the UK tax net, there are some positive changes in the rules as well. A UK citizen returning after more than ten years of being a non-resident will be able to access the foreign income and gains regime, while those leaving the UK will be able to determine with certainty at which point they will no longer be within the UK IHT net.
That being said, the impact of the changes can be very significant for UK resident non-doms and individuals affected by these changes should seek professional advice to navigate the new landscape effectively.
If you have questions on this topic, please contact IN Accountancy Tax Director Paul Brown who will be happy to help.
For more details you can access the policy paper covering these changes to non-dom taxation here:
