Definitions:
A non-domiciled (‘non-dom’) person is someone whose permanent home is outside the UK.
A UK tax resident is typically someone who spends 183+ days in the UK, or otherwise meets conditions based on work, home, or family ties (determined using the Statutory Residence Test).
Residence based system has replaced the domiciled status in determining aspects of an individual’s tax consequences. The test turns on whether you are considered a UK tax resident.
Remittance basis refers to individuals who are taxed on foreign income and gains only if they are brought (remitted) into the UK.
What was the position Pre-April 2025
Until the 6th April 2025, the UK’s taxation of individuals who were non-doms was based on the concept of domicile, a legal term under English law referring to a person’s long-term permanent home. Non-doms could live in the UK while enjoying favourable tax treatment under the “remittance basis”. This treatment typically lasted for up to 15 years. Additionally, non-doms were liable to UK inheritance tax (IHT) only on UK assets, unless they became deemed domiciled—by residing in the UK for 15 of the past 20 tax years.
Changes from the abolishment of the non-dom status
From 6 April 2025, the UK government has abolished the non-dom status, replacing it with a residence-based system. The remittance basis is scrapped, and all UK residents will be taxed on their worldwide income and gains as they arise, regardless of whether the funds are brought into the country. In its place, a new “Four-Year Foreign Income and Gains (FIG) Regime” has been introduced. This allows individuals who have not been UK tax resident in the past 10 years to be exempt from UK tax on foreign income and gains for their first four years of UK residence. However, electing into this regime means losing entitlement to UK tax allowances such as the personal income tax allowance and various CGT exemptions.
Impacts on Inheritance Taxation (IHT)
Domicile will no longer determine IHT exposure; instead, residence will be the key criterion. From April 6th 2025, individuals will be subject to IHT on their worldwide assets if they have been UK resident for 10 out of the previous 20 tax years. Furthermore, a “tail provision” means they could remain liable for IHT for up to 10 years after leaving the UK, depending on how long they were previously resident. This makes it far easier to be caught by UK IHT than under the previous 15/20 deemed domicile rule.
Impacts on Trusts
Historically, non-doms could establish non-UK trusts to shield foreign assets from UK tax, particularly IHT. These so-called “excluded property trusts” are losing these tax protections. From April 2025, any trust where the settlor is a long-term UK resident will be subject to UK tax on foreign income and gains. Exit charges and anniversary charges will apply, and the opportunity for indefinite IHT sheltering is effectively closed for new trusts established after 29th October 2024. UK resident beneficiaries are also liable to pay tax on distributions made, based on the original income and capital gains tax. We are yet to see how the law will be updated in this regard, because as it stands, there is a real risk of double taxation, on both settlor and beneficiary.
Case Study example
Paula is a wealthy businesswoman who moved to the UK in 2010. She’s originally from South Africa and pre-April 2025 was considered ‘non-domiciled’. She had previously set up a discretionary offshore trust in the Cayman Islands. After April 2025, she will be deemed domicile as she is a UK resident. She will be taxed annually on all income and GCT arising as a result of the Trust. This will be the case even if funds are never remitted to the UK. On her death her worldwide assets (including those outside of the UK) will be liable for IHT.
How to prepare
To prepare for the 2025 non-dom tax changes, individuals should review their residency status, consider electing into the new four-year FIG regime, restructure trusts or investments, and utilise the Temporary Repatriation Facility. Professional tax advice is essential to navigate transitional rules and negate exposure to UK income, capital gains, and IHT.
Related Expertise
Disclaimer: This publication is provided by Laytons LLP for informational purposes only. The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to your regular contact at Laytons LLP or Laytons’ Private Client team.