Clouds and silver linings – the abolition of the non-dom tax regime


In an unexpectedly dramatic move, the UK Chancellor, Jeremy Hunt, announced as part of his Spring Budget that, with effect from 6 April 2025, the existing tax regime for non-domiciled individuals, known as the remittance basis, will be replaced with a system based on residence.

While a likely announcement on non-doms had been trailed by the media in the week leading up to the Budget, it was generally anticipated that this might involve a promise to consult on possible changes rather than a complete overhaul of the regime.

Much of the detail has yet to be published, and there is no draft legislation yet, but the current proposals are as follows:


Tax on foreign income and capital gains 

  • Individuals - with effect from 6 April 2025, the existing remittance basis of taxation will be abolished, and the last year for which a remittance basis claim may be made will be tax year 2024/25.
  • The remittance basis will be replaced by a 4-year foreign income and gains (FIG) regime for individuals who become UK resident after a period of 10 tax years of non-UK residence. Once an individual has been resident in the UK for 4 tax years, they will be taxable on their worldwide income and gains.
  • Trusts - the current proposal is that from 6 April 2025, the protection from tax on income and gains arising within a trust will only be available for settlors or beneficiaries (as relevant) who qualify for the 4-year FIG regime.

Inheritance tax (IHT) - the government plans to consult on changes to IHT, but its initial proposals are as follows:

  • Assets owned outright - IHT may be charged on individuals' non-UK situs assets once they have been resident in the UK for 10 years, and they will continue to be in the scope of IHT for 10 years after they leave the UK. 
  • Trusts settled prior to 6 April 2025 - the existing IHT treatment will continue for any non-UK situs property that is settled into trust by a non-UK domiciled settlor prior to 6 April 2025.
  • Trusts settled on or after 6 April 2025 - the IHT rules for trust property are likely also to be based on a settlor's residence status under similar criteria as for personally owned property, looked at when the assets are settled and/or when 10-year anniversary or exit charges arise.
  • UK situs assets - it is proposed that these will remain in charge to IHT on the same basis as present, regardless of residence.


  • Individuals who qualify for the new regime ("qualifying individuals") will not pay tax on FIG arising in the first 4 tax years after they become UK resident for tax purposes.  This will also apply to FIG arising in trusts on which they would otherwise be taxable, either as a settlor on the arising basis, or a beneficiary on receipt of a distribution.
  • Qualifying individuals will be able to bring such FIG to the UK tax-free.  Under the existing remittance basis rules, any FIG that is brought to or used in the UK is taxable.
  • Qualifying individuals will continue to pay tax on their UK income and capital gains, as they do now.
  • The statutory residence test will be used to determine residence for any one tax year - this test uses a combination of the number of days spent in the UK and an individual's connections or "ties" with the UK (home, work, family etc.) to determine an individual's residence in any tax year.  
  • Treaty residence or non-residence (i.e. residence determined under the terms of a double tax treaty between the UK and another jurisdiction) and split years (where someone is resident in the UK for part of a tax year only) will be ignored.
  • The 4-year FIG regime will not be applied automatically – individuals will be required to claim it on an annual basis, and those who choose to do so will lose entitlement to personal tax allowances and the CGT annual exempt amount for that year.
  • Individuals will not be required to claim to be taxed under the new regime for each year of the relevant 4-year period, whether this is because they are non-resident for one or more of the relevant tax years, or because they simply choose not to.  However, it does not seem that it will be possible to “freeze” a year of non-residence, for example, so as to extend the 4-year period after their return.
  • If on 6 April 2025 an individual has been resident in the UK for less than 4 tax years (after 10 tax years of non-residence), they will be able to use the new FIG regime for any tax year(s) remaining of that 4-year period.

Transitional rules

The following transitional rules will apply to individuals who are currently taxed on the remittance basis but will not qualify for the 4-year FIG regime from 6 April 2025.  They will move to the arising basis of taxation from that date and be liable to tax on their worldwide income and gains.

  • Income tax - for tax year 2025/26 only, they will pay tax on 50% of their foreign income. 
  • Capital gains tax - if such an individual disposes of an asset they have owned personally since 5 April 2019, they will be able to elect to rebase its value to that date and pay CGT only on any subsequent gain.  This will apply provided they are neither domiciled nor deemed domiciled in the UK by 5 April 2025.  Conditions for this rebasing election will be published in due course.

Temporary Repatriation Facility (TRF)

  • From 6 April 2025 until 5 April 2027, it will be possible for an individual to remit FIG that arose to them before 6 April 2025, and in a year when they were taxed on the remittance basis, at a reduced tax rate of 12%.
  • From 6 April 2027 onwards, remittances of pre-6 April 2025 FIG will be taxed at normal tax rates.
  • The TRF will not apply to pre-6 April 2025 FIG arising in trusts.

Business Investment Relief (BIR) 

  • BIR will be available for qualifying investments of pre-6 April 2025 foreign income and gains (FIG) where such investments are made on or after 6 April 2025.  
  • It will also continue to be available for qualifying investments made prior to 6 April 2025.


  • FIG that arose in a trust structure before 6 April 2025 will be matched to trust distributions, as is the case currently, but the remittance basis will no longer apply.  Accordingly, pre-6 April 2025 FIG matched in this way will be taxed in full.  This contrasts with the position for pre-6 April 2025 FIG arising on assets held personally, which will not be taxed unless remitted to the UK.
  • Benefits received by beneficiaries and settlors who qualify for the 4-year FIG regime will be free from UK tax wherever they are received, but they will not be matched to trust income and gains.  Additional rules may apply to such benefits.  


The current remittance basis regime and the IHT rules relevant to non-doms are highly complex, partly due to the many provisions designed to prevent tax avoidance.  This is the case both for property held personally and settled property.  

Income and capital gains

  • Moving from a system based on both domicile and length of residence (deemed domicile) to one based purely on a 4-year period of UK residence should make the system simpler, not least because it is far more straightforward to determine if someone is resident in the UK for tax purposes using the statutory residence test than to analyse their domicile status.
  • In addition, the complex ordering rules for so-called “mixed funds” that determine whether funds remitted to the UK are income or CGT, and how they should be taxed, will no longer be relevant once the transitional period ends.  
  • For the period in which individuals qualify for the new 4-year FIG regime, there will be advantages to the new rules over those in place now because they will be able to bring FIG to the UK free of tax or any other charge.  They will also be able to receive distributions from non-UK resident trusts tax free. 

FIG-related planning points

  • While pre-6 April 2025 FIG arising in respect of personally owned property will continue to be tax-free under the new regime if it is not remitted to the UK, the position is not the same for pre-6 April 2025 FIG arising in a trust.  This will be matched to future distributions, as is the case now, but the remittance basis will no longer apply.  Neither will the transitional rates of tax apply to trust income.  
  • Accordingly, UK resident individuals, and trustees of trusts with UK resident beneficiaries, should review their trusts in advance of the changes, with a view to considering whether distributions may be beneficial to enable matching of pre-6 April 2025 FIG before this date, where this is possible.
  • Both individuals and trustees may wish to look at the timing of any planned disposals of assets, where this can be managed.  In some cases, there may be advantages for CGT purposes to time a disposal either before or after the changes are introduced.  Whether timing is relevant in relation to any disposal will depend upon the specific circumstances.

Inheritance tax

  • We still await the detail of the proposed changes to IHT, following the government's proposed consultation.  
  • However, a move from a domicile-based regime to one based on residence, even if it includes a “tail” of 10 years for those who leave the UK, may take many UK domiciled individuals, who have left the UK but not established a domicile elsewhere, out of the scope of IHT in respect of their non-UK assets.  Some such individuals may not even realise that their worldwide estates may be within the IHT net under the existing rules.  

IHT-related planning points

  • Under the current proposals, individuals who are neither domiciled nor deemed domiciled in the UK will be able to take non-UK assets out of the scope of IHT by settling them into trust before 6 April 2025.  Individuals in this situation may wish to consider this option, taking into account any potential CGT consequences, where these may apply.
  • Based on the current proposals, individuals who have not been resident in the UK for 10 years (or the relevant period chosen) may be able to create excluded property trusts after 6 April 2025.  This, combined with the new 4-year FIG regime, may provide a continuing opportunity for IHT planning (both pre- and post-arrival) in the future.


As with any significant legislative change, the devil will be in the detail, and this may not be fully clear for some time.  A 4-year grace period for new arrivals in the UK is significantly shorter than in many jurisdictions, and when combined with a 10-year re-set period, may make the UK relatively less attractive to overseas individuals, particularly those wealthy enough to consider paying fees to benefit from longer-term access to the remittance basis after 7 years.  

However, this should be set against the relative simplicity and certainty of a residence-based system.  Much time and money – which has, in unfortunate cases, even included an additional tax charge – is expended as a result of the subjective and fact-based nature of the domicile rules.  This aspect of the current regime is unlikely to be missed.

This note provides an overview of the proposed changes to the taxation of non-domiciled individuals as we understand them following the Budget.  We will report further on the new regime as more information is published. In the meantime, if you would like advice on how these or other changes may affect you and any trusts of which you are the settlor or trustee, please get in touch with your usual Howard Kennedy contact. 

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