The UK's taxation of non-domiciled individuals (non-doms) is set to undergo significant changes from 6 April 2025. These reforms will mark a major shift in how the UK taxes foreign income and gains, moving from a domicile-based system to one centered on tax residence. If you or your clients are affected by these rules, understanding the changes and planning ahead is crucial. Here's what you need to know.
1. Abolition of the Remittance Basis
The biggest change is the abolition of the remittance basis. Currently, non-doms can elect to pay tax only on their UK income and any foreign income or gains remitted to the UK. From April 2025, this option will no longer be available. Instead, all UK residents will be taxed on their worldwide income and gains as they arise, regardless of remittance.
2. Introduction of the Foreign Income and Gains (FIG) Regime
A new regime is being introduced for individuals who have not been UK tax residents for the previous 10 consecutive tax years. These individuals will benefit from a four-year period in which their foreign income or gains will be exempt from UK tax. However, during this period, they will forfeit their entitlement to the personal allowance for income tax and the capital gains tax annual exempt amount.
3. Changes to Inheritance Tax (IHT)
Under the new rules, the UK will move to a residence-based system for inheritance tax (IHT). Currently, IHT is determined based on domicile status, meaning that non-doms are only subject to IHT on their UK assets. From April 2025, individuals who have been UK residents for 10 of the last 15 tax years will be subject to IHT on their worldwide assets. This change is particularly significant for long-term UK residents who previously relied on non-dom status to shield overseas assets from IHT.
Note: Further details on Capital Gains Tax changes and other aspects were omitted from the source data provided. Please consult the full article or a tax professional for complete information.