The UK’s non-domiciled tax regime has been central to tax planning for wealthy expats for over two centuries. Introduced in the late 18th century, it has remained a key feature of the UK tax system. However, in March 2024, the then-Chancellor, Jeremy Hunt, announced its abolition, with Labour’s Rachel Reeves confirming she would have done the same. The regime will end on April 6, 2025, ushering in significant changes for non-doms, expats, and international investors.
Understanding domicile and non-domicile
Domicile is more than just tax residence—it involves both physical presence and long-term intent. It is a place that you intend to live permanently or indefinitely. There are two primary types:
- Domicile of origin: Inherited at birth, usually from the father. You do not lose your domicile of origin.
- Domicile of choice: Established through both physical presence and intent to reside permanently in a place.
Example: Barrie’s changing domicile
Barrie, born in the UK, inherited his father’s domicile of origin in the UK. Barrie then moved to Italy 15 years ago, married a local, and planned to be there permanently. He arguably has a domicile of choice in Italy.
However, a lucrative job offer in Saudi Arabia (KSA) prompted him to relocate for two years. As a result, he lost his Italian domicile of choice, and his UK domicile of origin was reinstated.
This illustrates how domicile reverts when residence or intent changes.
For non-UK-born individuals (having domiciles of origin outside the UK) who have moved to the UK, avoiding a UK domicile of choice has historically been possible if they didn’t intend to stay permanently.
Therefore, the domicile of origin is sticky. Difficult to shake and always ready to return
Non-domicile rules before April 6, 2025
Under the current system, non-doms can opt for the remittance basis for up to 15 years of UK residence, meaning:
- Foreign income and gains are taxed only if brought into the UK.
- An annual GBP 30,000– GBP 60,000 charge applies after 7 years of UK residence.
- After 15 years of residence, non-doms become deemed domiciled, losing remittance basis rights.
For Inheritance Tax (IHT):
- Non-doms pay IHT only on UK assets.
- Foreign assets remain tax-free unless they become deemed domiciled after 15–20 tax years.
- Deemed domiciled individuals face UK IHT on worldwide assets, leading many to use ‘excluded property trusts’ to shield their wealth.
Despite criticism that these rules favour the ultra-rich, they have also made the UK an attractive hub for global investment, wealth and talent.
The New Rules from April 6, 2025
Abolishing the remittance basis
The connection between domicile and taxation will be largely removed. Transitional provisions will exist, but the Foreign Income and Gains (FIG) Exemption will replace the remittance basis.
Income tax & CGT: The new FIG regime
- A 100% exemption on foreign income and gains for the first four years of UK residence (if they have not been a UK resident in any of the previous ten years).
- After 4 years, their worldwide income and gains become fully taxable in the UK
Inheritance Tax (IHT): A residence-based system
- Non-doms will be subject to UK IHT on worldwide assets if UK-resident for 10 out of the last 20 years. IHT applies at 40% on worldwide assets, including offshore trusts, making long-term planning crucial.
- Unlike the old 15-year rule, non-doms leaving the UK will remain in the IHT net for up to 10 years post-departure, complicating estate planning.
An unexpected fairytale for expats?
Long-term expats and IHT
However, for long-term expats, these new rules provide more certainty around their IHT exposure. Previously, they would have had to be confident they were non-domiciled for their non-UK assets to escape the IHT net. Even then, any planning depended on not disturbing their domicile of choice – a precarious status (see the example of Barrie above).
However, someone who has not been resident in the UK for 10 out of the last 20 tax years will benefit from non-Uk assets in their death estate being outside the scope of IHT and will be able to make outright gifts of non-UK assets which are disregarded for UK IHT purposes.
It is worth noting that, unless some relief or exemption applies, then any person with UK assets will be in the scope of UK IHT, even if they have never set foot there!
Returning expats and the FIG regime
Returning expats who have been non-UK-resident for 10 years will benefit from the FIG exemption for four years, offering a clear planning window.
With significant tax changes ahead, the UK is saying goodbye to the remittance basis. Whether the new FIG regime will attract mobile wealth remains uncertain. However, long-term expats have greater clarity on estate planning, and returning expats gain temporary tax benefits. As the old system ends, the tax landscape for international individuals will shift dramatically.
