Non-Doms: Current, New & Transitional Rules
The new regulations hinge on the intricate statutory residency test, yet non-doms have a four-year planning opportunity under the foreign income and gains (FIG) regime.
In the United Kingdom, a specialized tax system applies to non-doms – individuals who are UK tax residents but not UK domiciled or deemed domiciled. The subject of non-doms has been a frequent topic of political discourse, with recent calls for reform or even abolition of the existing regime.
In this year’s Spring Budget, Jeremy Hunt made a surprising announcement that the non-dom regime would be scrapped and replaced by a new foreign income and gains (FIG) regime. While it was widely anticipated that this would be a key priority for the Labour party if elected, the Chancellor took preemptive action.
Following Brexit, the government has emphasized the importance of maintaining the UK’s competitiveness and attractiveness for investment and high net worth individuals.
Any new regime must therefore strike a delicate balance, incentivizing high net-worth individuals to come to the UK while addressing criticisms of the existing regime, such as perceived unfairness and complexity.
Current Non-Dom rules
Before delving into the new regime, it’s essential to understand the existing framework, which remains in effect until April 5, 2025. References to the non-dom regime primarily denote the remittance basis. This basis grants UK tax relief on non-UK income and gains for individuals not domiciled or deemed domiciled in the UK, provided they have not been UK tax residents for more than 15 of the past 20 years.
Under the remittance basis, UK source income and gains, along with any non-UK source income and gains remitted to the UK, are subject to UK income tax and capital gains tax.
The remittance basis is free for the first nine years. Subsequently, individuals may incur a fee of £30,000 annually if they have been UK tax residents for at least seven of the past nine tax years. For those who have been UK tax residents for at least 12 of the past 14 tax years, the fee increases to £60,000 annually. The government notes that in the tax year ending 2021, approximately 37,000 non-domiciled taxpayers utilized the remittance basis.
New Non-Dom rules
The new foreign income and gains (FIG) regime offers individuals the opportunity to avoid paying UK income tax and capital gains tax on their foreign income and gains while being UK tax residents for up to four tax years.
Qualified individuals have the option to elect into the FIG regime, exempting them from UK tax on their FIG, regardless of whether those funds are remitted to the UK.
Eligibility for this regime is contingent upon individuals being tax residents in the UK for less than four years following ten consecutive years of non-UK tax residence. Once the initial four-year period elapses, the option to elect into the FIG regime is forfeited, and the tax relief becomes unavailable.
Tax residence for each tax year will be determined using the Statutory Residence Test, disregarding treaty residence or non-residence and split years.
Claims for utilizing the FIG regime must be submitted for each applicable year. Individuals may opt not to elect for every year. Even if an individual claims the FIG regime in one year but abstains from doing so in the subsequent year, they can still claim in years three and four. Consequently, the four-year threshold is not evaluated cumulatively, as with the current remittance basis.
Electing to be taxed under the FIG regime entails forfeiting entitlement to personal allowances and the capital gains tax annual exempt amount, mirroring the conditions of the current remittance basis.
Transitional Non-Dom rules
Individuals who, as of April 6, 2025, have been tax residents in the UK for less than four years following a period of ten consecutive years of non-UK tax residence, will have the opportunity to adopt the new regime for any tax year of UK tax residence within the remaining duration of those four years.
Additionally, specific provisions are in place for individuals who have previously utilized the remittance basis and do not meet the criteria for the four-year FIG regime. These provisions appear to have been introduced to potentially mitigate the impact of the new regulations.
a) In the fiscal year 2025/26, individuals transitioning from the existing remittance basis to the new arising basis will only be liable to pay UK tax on 50% of their foreign income. It’s important to note that this exemption does not extend to chargeable gains. Labour has announced intentions to amend the government’s proposed FIG regime in the event of winning the next election, with a focus on “closing the loopholes,” including abolishing this transitional rule.
b) During the years 2025/26 and 2026/27, a two-year ‘temporary repatriation facility’ will be available. This facility entails that any foreign income and gains (FIG) remitted to the UK during these years, which arose to the individual personally in a year when they were taxed on the remittance basis and were UK tax residents, will be taxed at a rate of 12%. It’s important to clarify that this provision does not apply to foreign income and gains arising within offshore trust structures. Furthermore, from April 6, 2027, remittances of pre-April 6, 2025 FIG will be subject to taxation at normal rates.
c) In the fiscal year 2025/26, non-domiciled individuals who have previously utilized the remittance basis will have the option to rebase foreign assets to their value as of April 5, 2019, in relation to any disposals occurring on or after April 6, 2025. This rebasing relief is applicable solely to non-UK situs assets held personally and does not extend to assets held within non-UK resident trusts.
Overseas workday relief
Currently, Overseas Workday Relief (OWR) is exclusively accessible to non-doms employed in the UK if they were non-resident for the preceding three consecutive UK tax years. OWR functions by granting relief on earnings for employment duties carried out outside the UK.
This relief is applicable for the initial year of UK residence and the subsequent two tax years.
Under the new regime, qualifying individuals will continue to have access to OWR. Similar to the existing regulations, the new OWR will not offer relief from National Insurance contributions (NICs).
Trusts
As of April 6, 2025, individuals ineligible for the new FIG regime will forfeit the safeguard against taxation on income and gains originating within settlor-interested trust structures. Any FIG arising within the trust from April 6, 2025, onwards will be subject to taxation on the settlor, following the same protocol as UK domiciled settlors currently experience, unless the settlor qualifies for the new four-year FIG regime.
Inheritance tax
Inheritance tax (IHT) currently operates on a domiciled-based system. However, the government plans to transition IHT to a residence-based system effective April 6, 2025, subject to consultation.
Under the proposed regulations, it is anticipated that IHT will be levied on worldwide assets owned outright once an individual has been a resident in the UK for 10 years (referred to as the ‘residence criteria’). Additionally, there will be provisions to keep individuals within the scope of IHT for 10 years after leaving the UK (known as the ‘tail provision’).
Regarding property held in trusts, it is envisaged that the new rules governing the chargeability of assets within a settlement will be contingent upon whether the settlor satisfies the residence criteria or falls within the tail provision at the time the assets are settled and/or when charges such as 10-year anniversary charges or exit charges arise.
Labour has expressed dissent with the proposed plan concerning the application of IHT to foreign assets held in offshore trusts. They argue that all foreign assets held in offshore trusts should be subject to UK IHT regardless of when the trust was established, as opposed to being limited to trusts created after April 6, 2025, as currently proposed.
Conclusion
The upcoming regime represents a significant departure, as non-doms will now only be eligible for UK tax relief for a period of four years, in contrast to the current system that extends tax benefits for up to 15 years.
Government-published statistics for the tax year ending in 2022 reveal a decrease in the number of non-domiciled taxpayers remaining in the UK for a second year compared to previous years. This trend suggests that the non-dom demographic typically does not remain in the UK for the full 15 years, indicating that the shift to a four-year system may have minimal impact.
Moreover, the new regime appears to streamline processes by placing greater emphasis on tax residence. However, reliance on the intricate UK Statutory Residence Test for the new FIG regime poses challenges. To address this, the government may contemplate amending the test to simplify the process of determining UK residence.

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