Non dom changes: the end of an era
On 6 April 2025 new rules came into force that radically change how individuals and trusts with connections to the UK are taxed.
The reforms mark a significant change to rules on UK personal taxation, some of which have their roots in 18th century rules.
The changes require a fundamental review of how international individuals and trusts with UK connections are taxed.
Below is a summary of the key changes.
Individuals
Inheritance tax
Individuals resident in the UK for 10 out of the last 20 tax years (referred to as a “Long Term Residents”) will be subject to inheritance tax (“IHT”) on worldwide assets.
Even if Long Term Residents become non-UK resident, they are still subject to tax on their global assets for up to 10 years (the “IHT Tail”).
It is important not to forget that even if a person is not a Long Term Resident (or does not have an IHT tail), UK assets are always subject to inheritance tax.
Domicile will no longer be relevant to inheritance tax (except double tax treaties that refer to domicile).
Long Term Residents will need to consider their estate planning with respect to UK issues in particular given they are subject to IHT on a worldwide basis
- sooner than under the old rules; and
- once they leave the UK due to the IHT tail, for a longer period potentially.
Four-year FIG regime
For the first four years of UK residence, a person can choose to not be taxed on foreign income and gains (“FIG”). This is regardless of whether FIG is brought into the UK. After the four year period, worldwide income and gains are within the scope of UK tax.
An important requirement to access the FIG regime is that an individual will have to be non-UK tax resident for at least 10 consecutive tax years. Residence will be tested using the statutory residence test (which remains unchanged).
There is no need to segregate income and gains under the four-year FIG regime as there was under the old remittance basis of taxation. However, those who were UK resident before 6 April 2025 with unremitted funds may want to maintain segregation for FIG that arose before 6 April 2025, if they want to bring it into the UK.
The four-year FIG regime can be used in relation to FIG attributed to settlors or beneficiaries from trusts. However, careful analysis is required as an election can have surprising and unintended consequences, such as causing the relieved FIG to be taxable on another person instead.
Trusts
Inheritance tax
Previously non-UK resident trusts settled by non-UK domiciled individuals that held non-UK assets (“non-UK trust”) were ‘excluded property’ trusts.
This meant that they were not subject to IHT under the Relevant Property Regime that trusts settled by UK domiciled people or UK assets are.
Under the new rules, where a settlor of a non-UK trust is a Long Term Resident, it will be subject to IHT under the Relevant Property Regime.
- 20% entry charge when assets were settled.
- 6% ten-year anniversary charge.
- Proportionate exit charge on a capital payment or when the settlor ceases to be a Long Term Resident.
Tax on income and gains
Some settlor-interested non-UK trusts were not taxed on a UK resident settlor as income and gains arose. Instead, income and gains were only taxed if and when a UK resident benefitted.
The new rules remove these trust protections. Where non-UK trusts are settlor interested and the settlor is UK resident (and not within the four-year FIG regime), they will be subject to income and gains on trust assets as they arise.
Transitional provisions
Those individuals who claimed the remittance basis under the old rules and are now taxed on worldwide income and gains can benefit from some transitional provisions.
Temporary repatriation facility
It allows unremitted FIG that arose before 6 April 2025 to be brought into the UK at a lower tax rate for a limited period of time.
Individuals will had to have been subject to the remittance basis before 6 April 2025. They can remit FIG at:
- 12% in the 25/26 and 26/27 tax year; and
- 15% in the 27/28 tax year.
Rebasing
Non-UK assets personally held can be rebased to the value at 5 April 2017 where there is a disposal after 5 April 2025.
Available to individuals who have claimed the remittance basis for any tax from and including 17/18 onwards and was not domiciled or deemed domiciled before 6 April 2025.
How can we help
It is important individuals and trustees with UK connections understand the impact of the significant changes which can expose individuals and structures to increased UK taxation.
We are here to help plan.
