With the abolition of the remittance basis, significant tax changes are on the way for UK non-domiciled individuals in 2025. What is the residence-based regime, what does it mean for foreign income and gains, and what steps can you take if you are affected?
Since 1914, the ability to be taxed on the remittance basis has been exclusively available to non-UK domiciled individuals. This link will be broken from 6 April 2025, when the concept of domicile is to be ‘abolished’ for tax purposes and replaced with a new residence-based regime.
The tax legislation concerning the tax treatment for non-UK domiciled individuals has undergone various changes over the years, most recently in 2008 and 2017.
Before April 2008, non-UK domiciled taxpayers were able to claim the remittance basis, meaning they were taxed only on foreign income and capital gains remitted to the UK, without any charge.
At the end of 2007, the then Labour Government announced that, starting from the 2008/09 tax year, non-UK domiciled individuals would need to pay an annual charge to claim the remittance basis if they had been UK resident for a specified period. The charge started at £30,000 where the individual had been UK resident for at least seven of the previous nine tax years, increasing through £60,000 to £90,000 for individuals who had been UK resident for at least 17 of the previous 20 tax years.
More sweeping reforms to the tax treatment for non-UK domiciled individuals were introduced by the former Conservative Government in 2017. In particular, the concept of ‘deemed-domicile’ was introduced for income tax and capital gains tax purposes.
The main rules from 2017/18 to 2024/25:
In his Budget speech in March 2024, the former Conservative Chancellor announced that the remittance basis would be abolished from 6 April 2025 and replaced with a new foreign income and gains regime. A prolonged period of uncertainty followed, which did little to promote the UK as a stable jurisdiction in which to live or do business.
We now have confirmation that the current Labour Chancellor has adopted the main aspects of these rules, with some clarification and narrowing, mainly to the available transitional measures and the inheritance tax rules.
Under the FIG regime, individuals will not pay tax on foreign income and gains for the first four years after becoming UK tax resident. The regime will be available, subject to a claim being made by the taxpayer, for those coming to the UK either for the first time or after an absence of over 10 years irrespective of domicile status.
Taxpayers who choose to use the regime will not be entitled to an income tax personal allowance or capital gains tax annual exemption for the relevant tax year and they will not be able to claim relief for foreign income losses and capital losses in the year of the claim.
If a taxpayer does not qualify for the FIG regime, they will be subject to UK tax on worldwide income and gains, irrespective of whether or not income and gains are remitted to the UK. Such individuals may be able to claim credit for tax paid overseas depending on the terms of any relevant tax treaty.
Income and gains that arose in an earlier tax year when the remittance basis was claimed will still be taxed if they are remitted to the UK. Taxpayers may still need to be aware of the rules around remittances and maintain records of the composition of any ‘mixed’ accounts used to fund UK spending.
The new rules include two transitional arrangements, available to existing non-UK domiciled individuals.
Designated income and gains on which the TRF charge has been paid can then be remitted to the UK with no further tax being due. The actual remittance does not need to be made within the TRF window, and could be made in a later tax year.
The current rules for ordering remittances from mixed funds will be adjusted so that income and capital gains designated under the TRF will always be treated as remitted to the UK in priority to other amounts comprised in the mixed fund.
The TRF will also be available for settlors and beneficiaries of non-UK resident trusts, who receive capital payments and benefits that match to trust income and gains. To qualify, the benefit must be received in the TRF window and the trust income and gains must have arisen within the trust before 6 April 2025.
Those who qualified for the rebasing rules under the 5 April 2017 changes (those becoming deemed UK domiciled from 6 April 2017 who had claimed the remittance basis) will be unaffected by this rule.
The previous Government’s proposed 50% reduction in the amount of foreign income assessable on former remittance basis users from 2025/26 has been scrapped.
Under existing rules, inbound non-UK domiciled employees can benefit from an income tax exemption on income from non-UK duties for the first three years of UK residence, subject to that income being received outside the UK and not being remitted to the UK.
From 6 April 2025, there will no longer be a requirement to keep the income offshore, meaning that the overseas element of the employment income can be brought to the UK without a tax charge. The ability to claim OWR will be available for the first four tax years after becoming UK resident, aligned with the qualifying period for the FIG regime. OWR will be limited to the lower of 30% of qualifying employment income and £300,000.
Taxpayers who claim relief under OWR will not be entitled to an income tax personal allowance or capital gains tax annual exemption for the tax year of the claim and they will not be able to claim relief for foreign income losses and capital losses in that tax year.
It will be possible to designate foreign income and gains used to make existing BIR investments as being subject to the TRF. If this is done then a tax charge will arise in the year of the designation and no further charge will apply on a potentially chargeable event, such as a sale of the investment. It will not be possible to take a mitigating step in respect of any designated amounts.
After 5 April 2025, it will be possible to make new BIR investments with non-designated foreign income and gains that arose before 5 April 2025. This opportunity will run to 5 April 2028, after which time it will no longer be possible to claim BIR on any new investments.
From 6 April 2025, protection from tax on income and gains arising within settlor-interested trusts will no longer be available and the foreign income and gains will be taxable on the settlor, unless the settlor qualifies for and claims the FIG regime.
If the trustees have made a ‘2008 rebasing election’, the effect of that election will continue for the purpose of calculating capital gains realised by the trustees after 5 April 2025.
If a trust beneficiary, who receives a payment or benefit from a non-UK resident trust that would otherwise match to trust income and gains, qualifies for and claims the FIG regime, the payment or benefit will not be taxable. The pool of trust income and gains will not, however, be reduced in these circumstances subject to modified onward gifting and close family member rules.
A residence-based regime will be introduced for inheritance tax (IHT), to take effect from 6 April 2025.
New arrivers to the UK will not be subject to IHT on non-UK assets for the first 10 years after becoming UK resident. After this, IHT will be chargeable on the taxpayer’s worldwide estate.
There will be a ‘tail provision’ to keep a taxpayer within the scope of UK inheritance tax on their worldwide assets for a period after ceasing to be UK resident. The length of the IHT tail will depend on how long the individual was UK resident for. Individuals who had been UK resident for between 10 and 13 of the previous 20 tax years before they left the UK will remain in the scope of IHT for three tax years after ceasing to be UK resident. The tail will then increase by one tax year for every additional tax year of residence, so an individual who was UK resident for all of the previous 20 tax years will remain in the scope of IHT for 10 tax years after leaving the UK.
If an individual returns to the UK after 10 consecutive years of non-UK residence, they will not be treated as a long-term resident in the tax year that they return to the UK, even if the individual had been UK resident for 10 of the 20 tax years preceding the tax year of return. The long-term residence test will be reset for these individuals.
Individuals who are within the scope of worldwide IHT will be referred to as ‘long-term residents’.
There will be a transitional rule for individuals who are neither UK resident nor UK domiciled in 2025/26. Those individuals will only be treated as long-term residents if they meet the current conditions to be deemed-UK domiciled, which require them to have been UK resident for 15 of the previous 20 tax years and for one of the four tax years ending in the current tax year. If those individuals resume UK residence, then the new IHT rules for determining long-term residence status will apply to them.
The IHT status for assets held in a trust will depend on the long-term residence status of the settlor at the time of the chargeable event. This means that assets held in trusts might move in and out of the scope of UK inheritance tax depending on the status of the settlor at the relevant time.
There is a potential trap where a settlor ceases to be long-term resident so that trust property becomes excluded property. In such a case, there can be an exit charge at up to 6% on the value of the trust property at the time.
The new IHT rules for trustees will apply to all trusts regardless of whether they were created before or after 6 April 2025 and regardless of the domicile or deemed-domicile status of the settlor at the time of the settlement. The only exception to this rule is where a settlor has died before 6 April 2025. In such cases, non-UK assets held in the trust will continue to be excluded property for IHT purposes if the settlor was neither UK domiciled nor deemed-UK domiciled when the settlement was made. This grandfathers existing IHT rules for trusts with deceased settlors.
Where non-UK assets have been settled into a trust and the settlor has retained a benefit, the assets will be subject to IHT under the gift with reservation of benefit regime if the settlor is a long-term resident at the time of their death. There will be an exemption for non-UK assets that were added to excluded property trusts before 30 October 2024. Such assets will be subject to the relevant property regime, so will be chargeable to IHT on trust 10-year anniversaries and exits after 6 April 2025.
You will qualify for the FIG regime for your first four tax years of UK residence to the extent that this period falls after 5 April 2025. During this period, you will not be taxed on your non-UK income and capital gains. You may be able to organise your affairs efficiently, for example by accelerating foreign income, and rebasing foreign assets.
You may also benefit from being able to claim overseas workday relief if you will continue to have non-UK employment duties after you come to the UK.
Your exposure to UK inheritance tax will be limited to UK assets for the first 10 years of UK residence.
If you are a director of a non-UK company or a trustee of a non-UK trust, you should consider whether your move to the UK could affect the tax residence of those entities.
You may wish to defer the purchase of any UK property until after you have become UK resident, so that the non-UK resident stamp duty land tax surcharge does not apply.
You will not qualify for the FIG regime or for overseas workday relief, so you will be taxed on your worldwide income and capital gains from when you become UK resident. It may be possible to claim credit for any foreign tax paid on that income or gains, depending on the terms of the relevant tax treaty.
If you have been non-UK resident for five years or less you will have been ‘temporarily non-UK resident’. Any capital gains realised on disposals of assets held before you became non-UK resident will come into charge in the year of your return to the UK. There may also be tax implications for particular types of income received during the temporary non-UK resident period and remittances made to the UK during that period.
Depending on your circumstances, it might be worth delaying your arrival if this would result in you qualifying for the foreign income and gains regime, or falling outside the temporary non-UK residence rules.
You should consider organising your tax affairs before you become UK resident. It may be possible, for example, to accelerate the receipt of foreign income or rebase foreign assets but you should also consider your tax treatment in the jurisdiction of your current residence.
When you become UK resident, you will become exposed to UK inheritance tax on your worldwide estate. If you are not already ‘deemed UK domiciled’ under existing rules, then you might consider accelerating any planned gifts before returning to the UK.
If you are a director of a non-UK company or a trustee of a non-UK trust, you should consider whether your move to the UK could affect the tax residence of those entities.
You may wish to defer the purchase of any UK property until after you have become UK resident, so that the non-UK resident stamp duty land tax surcharge does not apply, subject to advance consideration of the source of funds for the purchase which in some circumstances should be remitted before becoming resident.
You will qualify for the FIG regime for your first four tax years of UK residence to the extent that these fall after 5 April 2025. During this period, you will not be taxed on your non-UK income and capital gains. You may be able to organise your affairs during this period, by accelerating foreign income, and rebasing foreign assets.
You may also benefit from being able to claim overseas workday relief if you have non-UK employment duties.
If you have previously claimed the remittance basis then you may be able to benefit from the temporary repatriation facility and elect to rebase your assets to their value on 5 April 2017 for capital gains tax ‘cost’ purposes.
The temporary repatriation facility gives you the opportunity to remit any existing pre-6 April 2025 foreign income and gains into the UK and pay a reduced tax rate. The facility will be open for three years, until 5 April 2028.
If you have offshore bank accounts, you may wish to review the structure of these. You will be able to remit post-April 2025 income and gains to the UK at no additional tax cost so these funds should not be mixed with any income and gains that arose before 6 April 2025 in a tax year in which you claimed the remittance basis.
You should review any existing BIR investments to consider whether it would be beneficial to designate any invested income and gains as being subject to the TRF, or to make any new BIR investments whilst the opportunity remains open until 5 April 2028.
Your exposure to UK inheritance tax will be limited to UK situs assets for the first 10 years of UK residence, assuming that you were not previously UK resident before you arrived.
You will not qualify for the FIG regime, so you will be taxed on your worldwide income and capital gains from 6 April 2025. You will also not qualify for overseas workday relief.
If you can still use the remittance basis, you may wish to accelerate income or gains ahead of 5 April 2025.
If you have previously claimed the remittance basis you may be able to benefit from the temporary repatriation facility and elect to rebase the value of your capital assets to their value on 5 April 2017.
The temporary repatriation facility gives you the opportunity to remit any existing pre-6 April 2025 untaxed foreign income and gains into the UK and pay a reduced tax rate. The facility will be open for three years, until 5 April 2028.
If you have offshore bank accounts, you may wish to review the structure of these. You will be able to remit post-April 2025 income and gains to the UK at no additional tax cost so these funds should not be mixed with any income and gains that arose before 6 April 2025 in a tax year in which you claimed the remittance basis.
You should review any existing BIR investments to consider whether it would be beneficial to designate any invested income and gains as being subject to the TRF, or to make any new BIR investments whilst the opportunity remains open until 5 April 2028.
Your exposure to UK inheritance tax will be limited to UK situs assets for the first 10 years of UK residence, assuming that you were not previously UK resident before you arrived.
You will most likely not qualify for the FIG regime, unless you fall within one of the qualifying scenarios set out above, so you will continue to be taxed on your worldwide income.
If you have previously claimed the remittance basis then you may be able to benefit from the temporary repatriation facility. This gives you the opportunity to remit any existing pre-6 April 2025 foreign income and gains into the UK and pay a reduced tax rate. The facility will be open for three years, until 5 April 2028.
You will not qualify for the 2017 rebasing relief, as that is only available to taxpayers who are neither UK domiciled, nor UK deemed domiciled by 5 April 2025.
If you have offshore bank accounts, you may wish to review the structure of these. You will be able to remit post-April 2025 income and gains to the UK at no additional tax cost so these funds should not be mixed with any income and gains that arose before 6 April 2025 in a tax year for which you claimed the remittance basis.
You should review any existing BIR investments to consider whether it would be beneficial to designate any invested income and gains as being subject to the TRF, or to make any new BIR investments whilst the opportunity remains open until 5 April 2028.
You should take advice to understand exactly when you will cease to be UK tax resident. This could be part-way through a tax year if you meet certain conditions for ‘split year treatment’.
If you want to cease UK residence but still spend some time in the UK, you will need to keep records of your UK days and the ties that you have to the UK.
If you have been UK resident for at least 10 years before you leave, then the reformed inheritance tax rules mean that your worldwide estate will remain within the scope of UK inheritance tax for up to 10 years after you leave.
There is an exception to this rule if you leave the UK and you are non-UK resident in the 2025/26 year and remain non-UK resident until the year of the IHT event. In that case, a transitional rule applies, which means that you are only within the scope of IHT if you were UK resident for 15 of the 20 tax years before the year of the IHT event and for at least one of the four tax years ending with the year of the event. This effectively grandfathers existing IHT deemed domicile rules for individuals who become non-UK resident from 6 April 2025 and remain non-UK resident.
You should also take advice so that you understand how you will be taxed in the jurisdiction that you are moving to. Depending on the circumstances, it may be beneficial either to accelerate or delay income and capital gains in connection with your move.
Additional care is likely to be needed if you are the settlor, trustee or beneficiary of a trust, or if you are a shareholder or director of a company, as there can be tax consequences if the tax residence of the trust or company changes.
The current protected trust regime will end after 5 April 2025. From 6 April 2025, if the trust is ‘settlor-interested’ you will be taxable on all income and gains arising to the trustees, subject to whether or not you qualify for the FIG regime in the relevant tax year.
‘Settlor-interested’ has different meanings for income tax and capital gains tax purposes. Generally, a trust is settlor-interested for income tax if either the settlor or their spouse or civil partner are beneficiaries. The definition is much wider for capital gains tax.
Non-UK assets held in the structure may be exposed to UK inheritance tax charges. This will depend on whether you are long-term UK resident, broadly meaning if you have been UK resident for at least 10 of the previous 20 tax years.
If you continue to benefit from any assets held by the trustees then those assets will be subject to a gift with reservation unless they were excluded property before 30 October 2024. IHT may be charged on those assets if you are long term UK resident at the time of your death and the reservation persists or ceased within seven years of your death.
If you are an affected taxpayer, there is now a short window to review your tax affairs and plan for how the new tax regime will affect you in the future.
Please do get in touch with your usual Evelyn Partners team or one of the contacts listed if you would like to discuss these changes in more detail.
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