Changes to the Non-Domicile Regime in the UK

The UK has announced significant changes to its famous non-domicile regime, allowing individuals who wish to settle in the UK without the intention of remaining there permanently to avoid paying taxes on foreign income and capital gains. In this article, Antwort Law will outline the regime's key reforms and their implications, as well as provide guidance for those looking to take advantage of this provision.

The non-dom regime was introduced at the beginning of the 20th century and is one of the few in the Western world that provides such flexible conditions for wealthy foreigners.

Modern changes are being introduced to increase budget revenues, improve tax fairness and bring the country's tax legislation in line with international standards. They will certainly have a major impact on the UK's investment attractiveness. Let's take a closer look.

Taxes on Foreign Income and Capital Gains

Previously: non-domes could avoid taxation on foreign income and capital gains as long as the funds were not remitted to the UK.

Will: All foreign income and capital gains realized after the new rules take effect will be subject to tax. Under the new system, regardless of where an individual resides, and following transitional measures, anyone who has been a UK tax resident for more than 4 years will pay UK tax on any new foreign income and capital gains like all other UK residents.

Inheritance Tax (IHT)

Previously: Inheritance tax for non-doms is not payable on their non-UK assets unless they have been UK resident for 15 of the last 20 tax years.

Will: The UK government is consulting on the transfer of inheritance tax to the resident regime. For taxpayer peace of mind, tax on non-UK assets transferred into a trust before April 2025 will not change and will not be subject to UK inheritance tax.

Given the significance of these reforms, the government is introducing targeted transition measures for existing non doms:

Tax Reduction by 50%: For the 2025-26 tax year, non-residents who no longer benefit from the old transfer tax system will be able to reduce their taxable foreign income by 50%.

Revaluation of Assets: For sales of foreign assets after 6 April 2025, it will be possible to restate capital gains from 5 April 2019. This means that only capital gains from that date will be taxable.

Temporary repatriation at a reduced rate: For tax years 2025-26 and 2026-27, non-dom residents will be able to remit foreign income and gains earned before 6 April 2025 to the UK at a reduced rate of 12%.

Removal of trust protection: From 6 April 2025, new foreign income and capital gains in non-resident trusts will be taxed. Income and capital gains made in protected trusts before this date will not be taxed unless the distributions or benefits are paid to UK residents who have been resident here for more than 4 years.

Our recommendations

For those affected by these changes, we suggest the following steps:

1. Consult a Tax Professional: Consult a qualified tax advisor to understand how these changes may affect your specific situation and what steps you should take to minimize your tax liability.
2. Consider revaluing assets: Use the option to revaluate capital assets to April 5, 2019 levels to minimize capital gains on disposal.
3. Take advantage of temporary measures: if you plan to repatriate foreign income, do so in tax years 2025-26 and 2026-27 at the concessional rate of 12%.
4. Estate planning: Consider the current position of your assets and their transfer to a trust before April 2025 to avoid the new inheritance tax regime.

Changes to the non-domicile regime in the UK are significant and will require careful planning and adaptation. Responsible behavior and timely action will help minimize tax liabilities and ensure compliance with new rules. Antwort Law is ready to help you navigate these complex changes and provide solutions to suit your needs.

Vladislav Makarenko

Managing partner
Antwort Law