End of UK Non-Domicile Tax Benefits: What It Means for Tax Planning

James
Sep 8
4 min read

The UK’s non-domicile tax regime, which historically offered significant tax advantages for individuals with foreign ties, was abolished in April 2025. This reform has shifted the tax landscape, particularly for those who previously benefited from the non-domicile status. Contrary to common misconceptions, non-residents are not taxed on their worldwide income by the UK. Instead, the changes primarily affect individuals who become UK tax residents. This guide clarifies the new rules, their implications, and how to navigate the updated tax system.

Understanding the Non-Domicile Regime and Its Abolition

Until April 2025, individuals with non-domicile status (those whose permanent home was considered outside the UK) could use the remittance basis of taxation. Under this system:

UK tax residents with non-domicile status were taxed only on UK-sourced income and gains, plus any foreign income or gains brought (remitted) to the UK.
Foreign income and gains kept offshore were exempt from UK tax, providing significant fiscal flexibility for wealthy individuals, expatriates, and high-net-worth investors.

This regime was controversial, as critics argued it allowed affluent individuals to minimise their UK tax liabilities, contributing less to public finances. Growing pressure for reform led the UK government to abolish the non-domicile regime in April 2025, replacing it with a residence-based tax system.

Current Tax Rules for Residents and Non-Residents

The original claim that non-residents now pay UK tax on all worldwide income is incorrect. The tax rules as of September 2025 are as follows:

· Non-Residents: Individuals who are not UK tax residents (based on the Statutory Residence Test, e.g., spending fewer than 183 days in the UK annually) are not taxed on their worldwide income. They are only liable for UK tax on UK-sourced income, such as:

Rental income from UK properties.
Earnings from UK employment or self-employment.
Certain investment income, like dividends from UK companies (subject to double taxation agreements).

Non-residents are not required to report or pay UK tax on foreign income or gains unless they are remitted to the UK in specific circumstances (e.g., if they were previously UK residents claiming transitional reliefs).

· UK Tax Residents: Under the new residence-based system introduced in April 2025, individuals who become UK tax residents are eligible for a 4-year Foreign Income and Gains (FIG) relief period if they have not been UK tax residents for the preceding 10 years. During this period:

Foreign income and gains are exempt from UK tax, provided they are not remitted to the UK.
After the 4-year period, UK tax residents are taxed on their worldwide income and gains, regardless of where they are earned.

This replaces the previous non-domicile remittance basis, which allowed longer-term tax exemptions with Remittance Basis Charges (£30,000 or £60,000 after 7 or 12 years).

· Transitional Arrangements: For former non-domiciled individuals already in the UK, transitional reliefs may apply, such as rebasing assets to their value as of April 2025 or reduced tax rates on certain remittances. These provisions are complex and require careful planning.

Implications of the Changes

The abolition of the non-domicile regime has significant implications:

New UK Residents: Individuals moving to the UK after April 2025 can benefit from the 4-year FIG relief period, but they must plan carefully to avoid remitting foreign income or gains. After four years, worldwide income and gains become taxable, requiring long-term tax strategies.
Existing Non-Domiciled Residents: Those previously using the remittance basis must adapt to the new system, potentially facing higher tax liabilities if foreign income is remitted or after transitional reliefs expire.
Non-Residents: The changes do not affect non-residents’ tax obligations, as they remain liable only for UK-sourced income. However, non-residents considering UK residency (e.g., through visas like the Innovator Founder Visa) should plan for the 4-year FIG relief period.
Wealth Planning: High-net-worth individuals must reassess their financial structures, such as offshore trusts or investments, to optimise tax efficiency under the new rules.

The reform aims to create a fairer tax system, ensuring that UK residents contribute to public finances based on their global earnings after a transitional period. However, it has sparked concerns about the UK’s attractiveness to international investors and expatriates.

How to Navigate the New Tax Landscape

To manage the impact of these changes:

Pre-Arrival Planning: New UK residents should structure their finances before becoming tax resident, ensuring “clean capital” (tax-free funds) is available for UK expenditure.
Remittance Strategy: During the 4-year FIG relief period, avoid bringing foreign income or gains into the UK to minimise tax liability.
Transitional Reliefs: Former non-domiciled individuals should explore transitional provisions, such as asset rebasing or remittance reliefs, to reduce tax exposure.
Double Taxation Agreements: Non-residents and residents with foreign income can leverage treaties to avoid double taxation on UK-sourced or remitted income.
Professional Advice: Engage tax specialists to optimise your tax position, ensure compliance, and plan for long-term residency or investment goals.

Why Seek Expert Advice?

Navigating the UK’s new tax regime is complex, particularly for those transitioning from non-domicile status or planning to become UK residents. Errors can lead to unexpected tax liabilities or missed opportunities for relief. Foundry Accounting experts can assist with:

Tax Structuring: Maximising the 4-year FIG relief period and leveraging transitional arrangements.
Compliance: Ensuring accurate reporting of UK and foreign income through Self Assessment tax returns.
Strategic Planning: Advising on residency, visa options (e.g., Innovator Founder Visa), and long-term tax strategies.
Non-Resident Obligations: Guiding non-residents on UK-sourced income and double taxation agreements.

For more information on navigating the new tax rules or to get tailored advice, contact Foundry Accounting or visit our website.