Changes to the Domicile and Non-Domicile Rules

Under the UK tax system, individuals who are not domiciled or deemed domiciled currently have the option to pay UK tax on a remittance basis. This means they only pay UK tax on foreign income and gains when those amounts are brought into the UK. If kept offshore, foreign income and gains are not subject to UK tax.

For more details on determining domicile status and when an individual is considered "deemed domiciled," please refer to our previous article.

Non-Domicile Changes from April 2025

From April 2025, the non-domicile status system will be replaced with a new one that is residence-based, which introduces significant changes to how foreign income and gains are taxed in the UK.

The remittance basis will be abolished and UK-resident individuals will be taxed on their worldwide income and gains by default.

Four-Year Foreign Income and Gains (FIG) Regime

For individuals who return to the UK after being non-resident for 10 years, or who are coming to the UK for the first time, the FIG regime will be available for the first four years of UK residence. During this period, individuals will not be subject to UK tax on their foreign income and gains, allowing them to bring funds into the UK tax-free. Note that split years count as full residence years for this regime.

However, individuals benefiting from this scheme will lose their entitlement to:

• Personal allowance for income tax

• Annual exemption allowance for capital gains tax

  
  

Additionally, offshore life insurance policies will not qualify for this relief. This regime also applies to individuals with a UK domicile of origin who are returning after 10 consecutive years of non-UK residence.

Temporary Repatriation Facility (TRF)

Individuals who have previously used the remittance basis will be eligible for the TRF. The TRF allows foreign remittance basis users to transfer offshore untaxed income and gains to the UK at a reduced tax rate. The rates are 12% from April 2025 to April 2027, and 15% for the tax year ending April 2028.

Individuals will need to designate amounts that are, or derive from, FIG arising before 6 April 2025. These amounts must be included in tax returns, and the corresponding tax will be payable in that year.

Capital Gains Tax (CGT) Rebasing

CGT rebasing will be available for assets held by individuals. To qualify, individuals must not have been UK-domiciled or deemed domiciled at any point before the 2025/26 tax year and must have claimed remittance basis for one or more tax years from 2017/18 to 2024/25.

Under this scheme, assets will be rebased to their market value as of 5 April 2017. If an individual became deemed domiciled for the first time on 6 April 2017, they will continue to benefit from this rebasing, provided they meet the relevant conditions until the end of the 2024/25 tax year.

Speak to an Expert

These significant changes mean that from 5 April 2025, non-domiciled individuals will be taxed on their worldwide income and gains. These rules are also crucial for individuals returning to the UK after living overseas. If you think you may be affected by these changes and wish to plan ahead, please contact our London Tax Team for an initial, no-obligation consultation. We will be happy to assist.

Authored by: London Tax Team