Residency-Based Taxation Replacing ‘Domicile’ Concept

Significant changes have been announced for UK resident non-domiciled individuals—those who spend substantial time in the UK without intending to settle permanently. Starting 6 April 2025, the concept of “domicile” will be removed from the UK tax system, replaced by a tax regime based on years of UK residence.

 

Income and Capital Gains Taxes

Currently, UK residents who are not domiciled can use the “remittance basis,” meaning they pay UK taxes only on foreign income and gains brought into the UK, often with an annual charge of up to £60,000. This remittance basis will be abolished from April 2025, making all UK residents liable for tax on worldwide income and gains. To ease the transition, a 100% tax relief on foreign income and capital gains will be available for the first four years of UK residency. However, those who claim this relief will forfeit the UK personal allowance, capital gains tax (CGT) annual exemption, and certain foreign loss reliefs.

For eligible employees with foreign income, “overseas workday relief” will still apply to income from overseas duties. However, changes to the relief will include a new cap of either £300,000 or 30% of total employment income, whichever is lower.

 

Inheritance Tax (IHT)

Currently, IHT applies to worldwide assets for UK-domiciled individuals but only to UK-based assets for non-domiciled individuals. From 6 April 2025, individuals who have been UK residents for at least 10 of the past 20 tax years will be subject to IHT on both UK and non-UK assets. This will continue for three to ten years after they leave the UK.

If you have recently moved to the UK or have not always lived here, these new rules may affect you. There may be some exemptions or transitional reliefs available, such as a temporary repatriation facility for overseas funds or “re-basing” overseas assets to their April 2017 value to reduce CGT on gains post-2025.