Reform of The UK’s Tax Regime
Khushi Kanodia
Solicitor
From 6 April 2025, the UK government has abolished the concept of domicile status for tax purposes, replacing it with a residence-based regime. The government has introduced these measures to ensure that all long-term UK residents pay their taxes in the country, as explained https://www.gov.uk/government/publications/tax-changes-for-non-uk-domiciled-individuals/reforming-the-taxation-of-non-uk-domiciled-individuals.
The remittance-based system has been replaced by a residence-based system, which will also see the abolition of the non-domicile regime. This will alter how foreign income, capital gains, and estates are treated, having significant implications for individuals with international ties.
New Foreign Income & Gains (FIG) Regime
Starting 6 April 2025, individuals who have been non-residents in the UK for 10 consecutive years can claim a 4-year relief. After this period, the UK will tax all residents on their worldwide income and gains. Authorities will also take into account years of residence before 6 April 2025. The foreign income and gains subject to this tax exemption will need to be quantified and disclosed on tax returns. The new regime significantly reduces the exemption period significantly in comparison with the remittance-based system, which provided an exemption of 15 years.
One form of transitional provision being introduced for individuals who were in the UK tax residents before 2025-2026 is the temporary repatriation facility. Under this facility, individuals will be able to designate and remit at a reduced rate foreign income and gains that arose before the changes for a period of 3 years. The temporary repatriation facility rate will be 12% for the first 2 years and 15% in the final tax year of operation.
Inheritance Tax: A New Residence-Based Test
Currently, UK IHT applies to UK assets and, in the case of UK-domiciled (or deemed domiciled) individuals, to worldwide estates. From 6 April 2025, the system moves towards a residence-based test, which will affect the scope of non-UK assets being subject to UK Inheritance Tax. An individual is a long-term resident for IHT purposes when they have been resident in the UK for at least 10 out of the last 20 tax years and then remain in scope for between 3 and 10 years after leaving the UK, depending on the length of their residency. This means that an individual’s worldwide assets will effectively fall within the scope of UK IHT from the 11th year of their UK tax residence. Therefore, individuals need to consider their position and residence in the UK for a period of longer than 9 years in any 20-year period.
Moving to a residence-based system instead of the domicile test means that all individuals will be affected by this reform, irrespective of whether they are UK or non-UK domiciled under the current system. Individuals who have not resided in the UK or plan to leave the UK should also consider their position in detail.
Another change under the new measures affects trusts. From 6 April 2025, the excluded property status of non-UK trust assets will depend on whether the settlor qualifies as a long-term resident when a chargeable event occurs. Whereby, if the settlor is a long-term resident, then any settled assets will be within the scope of UK IHT under two separate charging regimes.
How We Can Help
These reforms represent the most significant changes to the UK tax system and fiscal policy in years. For individuals with international assets or exposure to UK residence will need to consider their position. We can assist with assessing your individual circumstances and guide you on a case-by-case basis. To discuss how these changes may impact you, please contact our team.
For specialist advice and support. Please get in touch with our corporate solicitors in London by contacting the GOOD LAW INTL office.
A warm welcome to GOOD LAW INTL. To learn more about us and our practice areas, we invite you to browse through our website and contact us or book an appointment.
