While the abolition of the non-dom regime continues to make headlines since Rachel Reeves' first Budget in October 2024, there is in fact reason for many to remain optimistic. In this article, we explore the opportunities under the incoming residence-based regime.

The reform of personal taxation for international clients continues to make headlines, with much of this focused on the abolition of the favourable tax regime for “non-doms” from 6 April 2025, and the impact this has had on the number of individuals – particularly those of High Net Worth – leaving the UK. Although there are undoubtedly those who will have a significantly higher tax bill as a result of the new rules, there are still reasons for some to be optimistic as they could end up as winners under the new regime. Our separate article published after the UK Budget in October summarises the changes set to take effect.

The chance for greater certainty

The most obvious practical benefit of the new reforms is the higher degree of certainty that a regime based on residence brings. Whilst domicile is a long-established concept, some positions could be finely balanced and HMRC have increasingly scrutinised non-domicile status in recent years. These enquiries were often extensive, resulting in a long and expensive process for the client. The new regime will be based on the Statutory Residence Test, which is much more prescribed, with fewer areas open to challenge and robust evidence easier to collate.

Short-term arrivers in the UK

Going forward, UK Income Tax and Capital Gains Tax (CGT) will be based exclusively on residence, with short-term arrivers in the UK being the obvious ‘winners’ of the changes. Individuals arriving to the UK will be able to benefit from a four-year ‘FIG regime’ exempting foreign income and gains (FIG) from UK tax, provided their arrival follows a period of ten consecutive years of non-UK tax residence. For individuals that qualify, the relief goes further than the current ‘remittance basis’ for non-doms, as the FIG can also be brought to the UK free of UK tax, removing the administrative burden associated with bank account structuring and the tracing of monies. The UK therefore remains a tax-efficient location for individuals looking to live in the UK for four or fewer tax years.

UK domiciled individuals

Now that the UK tax system will be based on residence, UK and foreign nationals alike can access the four-year FIG regime and new inheritance tax (IHT) regime (subject to the non-residence periods being met). This could provide a big advantage over the current regime, which immediately exposes a UK-domiciled individual to income, CGT. and IHT on their worldwide income/assets upon reacquiring UK residence. UK-domiciled individuals who leave the UK in future should have increased certainty on their exposure to UK IHT going forward, with their exposure based on years of non-residence rather than evidencing they have relinquished their non-UK domicile (often not tested until after their death).

Previous remittance basis users and the opportunity for a low tax rate on remittances

For individuals transitioning from the remittance basis, who are unable to benefit from the FIG regime due to prior UK residence, the new regime is certainly much less generous, but the transitional measures provide some cushioning against the impact and present opportunities for those individuals that will remain in the UK:

• A temporary repatriation facility (TRF) will be available for three years and provides an opportunity to ‘designate’ FIG previously untaxed in the UK, pay tax on it at a preferential tax rate of 12% (rising to 15% in 2027/28), and bring it to the UK at a much lower rate than the current top rate of 45%.This is also available on income/gains accumulated in certain offshore trusts/companies.

• It may be possible to rebase non-UK assets prior to 6 April 2025 using the existing remittance basis with no UK tax leakage, providing a recent base cost for future disposals that will be within the scope of UK CGT.

Leaving the UK

For any non-doms planning to leave the UK in the next few years, timing this properly can ease the impact or possibly avoid being caught under the new rules altogether. There are some transitional provisions that apply to non-doms who are non-UK resident in 2025/26, which can prevent them from remaining within the scope of UK IHT for the new ‘tail’ period of 10 years after emigrating.

Treaty protections

For the vast majority of clients, domicile will no longer be relevant for UK tax purposes (though it could still be relevant for certain UK legal purposes e.g. succession matters). However, for those seeking to utilise one of the UK’s Estate Tax Treaties, the concept of domicile will continue to be a factor as these treaties will not be re-written to apply a residence-based test. Examples include the UK’s treaties with the US, India and Pakistan, which can still provide protection from the scope of the UK’s new IHT rules for clients who continue to have a non-UK domicile.

How can we help?

Given the complexity of the changes and the implications of its outcome, it is crucial that you understand how the new rules will apply to your unique circumstances and the various ‘windows’ after which potential planning opportunities will be lost.Early planning is essential, particularly as we approach 5 April. If you require professional advice or support to help you prepare for the changes and take advantage of any reliefs available, please fill out the form below and one of our experts will be in touch to discuss your requirements.