As of April 6th 2025, the UK has overhauled its tax system for non-UK domiciled individuals (“non-doms”), abolishing the concept of ‘domicile’ as the connecting factor for taxation and replacing it with a residence-based taxation framework. Going forward, liability for income, capital gains, and inheritance tax will depend solely on an individual’s period of residence in the UK, not their domicile status.
This change is part of the UK Labour Party’s promised reforms under Keir Starmer, aimed at eliminating what they saw as an outdated and unjust tax break for certain individuals and ensuring equitable taxation going forwards.
The Old Regime – Remittance
The previous taxation system for non-doms functioned on a remittance-basis, meaning that they were only taxed on their UK-source income and gains, while their fore ign income and gains were taxed only if they were remitted to the UK. The individuals eligible for the remittance basis included:
(i) Non-doms under 18 years with no UK income or remitted foreign income
(ii) Non-doms with unremitted foreign income under £2,000
(iii) Non-doms who have been UK residents for less than 7 of the last 9 years
(iv) Non-doms who have been UK residents for 7 or more of the last 9 years
The remittance basis required non-doms to make a claim and, for individuals falling within point (iv) above, paying a charge of £30,000. The UK government felt that the remittance basis of taxation not only allowed, but possibly motivated non-doms to keep overseas earnings outside the UK tax net, which is what necessitated the introduction of this new regime.
The New Regime – FIG and Residence
The new regime replaces the remittance basis of taxation with a new 4-year foreign income and gains (FIG) regime. These changes are applicable to both UK-domiciled individuals and non-doms, but will naturally affect non-doms more since they were the ones benefitting from the remittance basis.
As per the 4-year FIG regime, individuals will be subject to full UK taxes on their FIG where they have been a UK resident for more than four years, regardless of their domicile status. They will get 100% tax relief on FIG only in those first four years of residence in the UK, provided they have not been a UK resident in any of the 10 tax years immediately prior to the relevant tax period.
To illustrate, this means that a new arrival to the UK will not be subject to tax on their FIG for the first 4 years of their residence in the country. This person will be only be liable to pay tax at normal UK rates if: (i) they end up residing in the UK for more than 4 years; or (ii) they had been a resident of the UK in one of the 10 tax years prior to their arrival.
How is Residence Determined?
An individual’s residence under the FIG regime will be determined using the ‘statutory residence test’ – if you spend 183 or more days in the UK in a tax year, then you are automatically a UK resident for that year. The years of residence prior to 6th April 2025 will also be considered in this calculation. As a result, individuals who became UK residents from the 2021-22 tax year onward will not be eligible for the FIG regime.
To put this into perspective, we must consider the rules for deemed domicile in the UK, according to which a non-dom will be deemed UK-domiciled for tax purposes if they have been a UK resident for at least 15 of the 20 tax years immediately before the relevant tax year. This meant that full UK tax obligations for non-doms would have only arisen after 15 years of residency under the old regime. However, as per the new regime, tax obligations now arise after just 4 years of residency, significantly reducing the timeframe for non-doms to be taxed on their FIG.
All non-doms who used to use the remittance basis and who are not eligible for the 4-year FIG regime will have to pay tax at the same rate as other UK resident individuals on any newly arising FIG.
Claiming Relief
To claim the 4-year FIG regime, individuals have to quantify and designate the amount of income and gains for which relief is being claimed under the regime. If amounts of FIG are not quantified and included in the return, then individuals remain chargeable and subject to tax at the usual rates in the UK.
In response to the concerns raised by non-doms in the UK, the government has also introduced a Temporary Repatriation Facility (TRF) as part of the changes. This allows individuals who previously claimed the remittance basis to remit FIG earned before 6th April 2025 at a reduced tax rate. TRF will be available for a limited period of three tax years (2025–2028), with a 12% tax rate for the first two years and 15% in the final year.
Conclusion
There’s no misunderstanding the rationale behind the new regime – the government itself has stated that it is removing the “outdated” concept of domicile status in favour of a residence-based regime to become more internationally competitive and focus on attracting the best talent and investment to the UK.
This change brings the UK in line with countries like India, which already tax individuals based on residential status rather than domicile. In India, residents are taxed on worldwide income, while non-residents and those classified as ‘resident but not ordinarily resident’ are taxed only on Indian income and certain foreign income linked to India.
Although the government hopes to close a tax loophole in the UK, what remains to be seen is how these changes will impact the UK’s attractiveness to non-doms and whether they will lead to a shift in residency patterns among high-net-worth individuals, with the UK already seeing a significant number of millionaires leaving the country in 2024.
In response to tightening global tax reforms, such as this one in the UK, family offices and private capital are increasingly moving to largely tax-free jurisdictions like the UAE, reflecting a broader shift in global mobility and tax planning strategies among high-net-worth individuals.
