The move from domicile to duration – the key UK tax changes effective from 6 April 2025

In this article, Gemma Johnson and Neil McGinn discuss the major reforms on the taxation of non-domiciled individuals in the UK.

Two months ago, on 6 April 2025, the UK Government implemented one of the most significant overhauls in decades to the UK tax system.  The former tax regime that applied to non-domiciled individuals was replaced with a new residence-based system.  The new system will impact many high-net-worth individuals as well as those who are internationally mobile and trustees of certain offshore structures; meaning that they, together with their advisers, will be keen to understand their position under this new system.

Under the former, more generous regime that applied to individuals that were tax resident but non-domiciled in the UK, such individuals could make a claim to be taxed on the remittance basis until such time as they had been tax resident in the UK for fifteen out of the previous twenty tax years.  This meant that they would generally only pay UK tax on their UK source income and gains, and on any foreign income and gains they chose to bring into the UK.  Provided they remained non-domiciled for tax purposes, their foreign assets were also not within the charge to Inheritance Tax (IHT).

Under the new residence-based system, a much shorter reprieve from UK taxation on foreign income and gains is only potentially available where an individual arrives in the UK and has been non-resident for the last ten consecutive tax years.  For all others, UK tax will be levied on their worldwide income and gains.

In addition, anyone who has been UK resident for at least ten of the past twenty tax years will be classed as ‘long-term resident’ (LTR) and will become subject to IHT on their worldwide estate, with certain family trusts also being brought within the charge to IHT as a consequence of an individual’s LTR status.  These changes will therefore see many individuals being brought within the full scope of UK taxes. Meanwhile for those individuals that decide to leave the UK, they may still remain subject to IHT on their worldwide assets for up to another ten years.

These changes mark a fundamental shift from the long-standing practice of taxing individuals based on domicile status, which traditionally provided considerable flexibility and planning opportunities.  Below, the changes are discussed in greater detail.

What has changed from 6 April 2025?

Taxation of Foreign Income and Gains

With effect from 6 April 2025, all UK residents are subject to UK tax on their worldwide income and gains as they arise (the ‘arising basis’ of taxation).

Individuals who have come to the UK after at least ten consecutive tax years outside the UK will be classed as ‘Qualifying New Residents’ (QNRs) who may avail of the Foreign Income and Gains (FIG) regime, allowing them to claim UK tax relief on income and gains arising offshore during their first four years of UK residence. Eligibility is not affected by nationality, past domicile status, or prior use of the remittance basis.  Claims can be made on self-assessment income tax returns starting from the 2025/26 tax year, and any relieved income or gains brought into the UK will not trigger a tax liability.  It is important to note that individuals using the FIG regime will lose their personal allowance and capital gains tax exemption, echoing the former remittance basis restrictions.

For those QNRs who arrived in the UK during or after the 2022/23 tax year, they will still be within their first four years of UK residence and thus eligible for the FIG regime for the 2025/26 tax year as well as potentially subsequent tax years, depending on the date of their arrival.

Foreign Employment Relief

Previously known as Overseas Workday Relief (OWR), the new Foreign Employment Relief (FER) regime will benefit QNRs who have employment income from duties carried on outside the UK.

FER is available during their first four (previously three) tax years of UK tax residence. Individuals must be a QNR for the tax year in which the duties are performed and must make a FER election for that tax year.  FER is also subject to a new annual cap being the lower of £300,000 or 30% of total employment income, although with the benefit that the overseas earnings do not need to be retained offshore and therefore can now be brought into the UK.  Transitionally, those employees who started their three-year claim for OWR before 6 April 2025 but who are not QNRs, can still avail of the former OWR during the first three years of residence.  Those who are QNRs and started their three-year claim before 6 April 2025, can make an FER claim for up to the first four years of UK residence without the limitation of the cap. FER remains a valuable tool for individuals employed by global firms with duties performed offshore, but careful structuring is now essential to ensure eligibility and efficiency.

Temporary Repatriation Facility

The Temporary Repatriation Facility (TRF) is a valuable transitional measure, designed to encourage former remittance basis users to bring previously unremitted foreign income and gains into the UK at favourable rates.  The facility is available to those who have offshore income and gains that arose during a period where the individual was claiming the remittance basis and can be availed of for a three-year period only.

The TRF provides for designated income and gains to be taxed at a flat rate of 12% for the 2025/26 and 2026/27 tax years, thereafter increasing to 15% for the 2027/28 tax year (with no credit for any foreign taxes suffered).  There is no requirement for the designated income or gains to be physically brought to the UK during the claim year to make use of the TRF.  Designated amounts will be known as ‘Qualifying Overseas Capital’, regardless of whether they were originally in the form of income or gains.  The TRF provides an opportunity for those with unremitted funds within complex offshore structures to simplify their affairs and bring potentially significant amounts of wealth into the UK at relatively low rates of tax.

Additionally, individuals that had previously claimed the remittance basis may be able to rebase their foreign capital assets held personally to their market values on 6 April 2017, subject to meeting certain qualifying conditions.

After the TRF closes, historic income and gains thereafter remitted to the UK will be taxable at normal income tax and capital gains tax rates, as was the case under the old regime.

Business Investment Relief to be phased out

Business Investment Relief (BIR), which allows non-domiciled individuals to bring unremitted funds into the UK for certain investments without triggering UK tax, is now being phased out.  It will no longer be possible to make new BIR claims from 6 April 2028, although existing investments will retain BIR status until a chargeable event, such as disposal.

For entrepreneurs and investors with unremitted funds, in particular those that do not plan to use the TRF, they should review their future investment strategy now to ensure that any potential for BIR is maximised whilst it remains available.

Scope of Inheritance Tax

For those individuals that were previously non-domiciled but will now be regarded as LTR, the scope of IHT will now extend to their worldwide assets.

The worldwide assets of LTR individuals will now be within the scope of UK IHT from the eleventh year of UK tax residence.  LTR individuals who leave the UK will also continue to be subject to IHT on their worldwide assets for a period of time lasting between three and ten years.  The length of this IHT ‘tail’ will generally depend upon how long the individual was resident in the UK prior to their departure, with some transitional provisions applying for certain individuals that ceased their UK residency before the 2025/26 tax year.

This means that even when leaving the UK to take up residence in another jurisdiction, LTR individuals will need to remain conscious of their exposure to IHT in the UK for a considerable period thereafter.

Consequences for Offshore Trusts

The new LTR rules will have significant consequences for those trusts that were previously outside the scope of UK taxation by virtue of the non-domiciled status of the individuals who settled them. Such trusts, commonly held offshore, would have typically operated as a tax-efficient vehicle for non-domiciled individuals to shelter their wealth from UK taxation.

Where the settlor of an offshore trust is a LTR, any non-UK assets held within the trust structure will now be subject to IHT at up to 6% upon specific events, such as the ten-year anniversary of the trust and the appointment of capital out of trust.  In addition, where a LTR settlor leaves the UK, any non-UK situs assets within a trust could be subject to an IHT charge when the settlor eventually loses their LTR status.

In addition, where an offshore trust is settlor-interested, income and gains arising within these trusts will now be taxable on the settlor personally whilst they are UK tax resident.  It is possible for the aforementioned FIG and TRF regimes to apply in respect of trusts, however this would only be the case where the settlor is a QNR.

While trusts remain a valuable planning tool, many offshore trusts will no longer offer the benefits they once did and thus should be carefully reviewed.

A new era for international clients and their advisers

The abolition of the remittance basis and the arrival of LTR status signals the end of an era for UK tax planning.  For many international families and globally mobile professionals, the UK is becoming a significantly more complex and taxing jurisdiction.  Many are choosing to permanently move away from the UK and this becoming a concerning trend among the wealthier.

Now more than ever, advisers are needed to support both those who wish to stay in the UK and those that are planning to leave.

Gemma Johnson is a Tax Director with Grant Thornton. She has over 18 years’ experience working with private individuals specialising in tax-efficient business and transaction structuring.

Neil McGinn is a Tax Associate Director with Grant Thornton.