Massive changes to non-domicile rules
The UK government is implementing significant reforms to the taxation of non-UK domiciled individuals, effective from 6 April 2025. These changes aim to simplify the tax system by removing domicile as a determining factor for income tax, capital gains tax, and inheritance tax.The reforms will replace the remittance basis with a new four-year Foreign Income and Gains (FIG) regime and transition to a residence-based system for inheritance tax.
Key Features
- Elimination of Domicile as a Tax Factor: Domicile will no longer influence liability for income tax, capital gains tax, or inheritance tax. This change subjects long-term UK residents, regardless of their original domicile, to taxation on their worldwide income and gains.
- Introduction of the FIG Regime: Starting 6 April 2025, the remittance basis will be replaced by the FIG regime, offering a four-year exemption for foreign income and gains. To qualify, individuals must have been non-UK resident for at least 10 consecutive years before becoming UK tax resident. This regime applies to both UK-domiciled and non-UK domiciled individuals meeting the non-residence criteria.
- Transition to a Residence-Based Inheritance Tax System: Inheritance tax will shift to a residence-based system, making UK tax residents liable for inheritance tax on their global assets. This change aims to close loopholes that previously allowed non-domiciled individuals to avoid UK inheritance tax through offshore trusts and excluded property reliefs.
Temporary Repatriation Facility (TRF):
To facilitate the transition, a Temporary Repatriation Facility will allow non-UK domiciled individuals to bring foreign funds into the UK at a special tax rate during a designated period. This measure encourages the repatriation of offshore assets before the new rules take full effect.
Implications for Affected Individuals:
- Review of Assets and Structures: Individuals should assess their current asset holdings to understand the impact of the new rules.
- Consideration of FIG Regime Eligibility: Those planning to become UK residents should evaluate their eligibility for the FIG regime.
- Inheritance Tax Planning: revisit estate planning strategies to ensure compliance and tax efficiency.
- Utilization of the TRF: Taking advantage of the Temporary Repatriation Facility may offer tax benefits for bringing foreign funds into the UK before the new regime is fully implemented.
