For over a century non-domiciled individuals (“Non-Doms”) benefitted from an attractive tax regime in the UK. However, on 6 April 2025, the era of Non-Dom taxation ended.
To date, the focus has been on whether Non-Doms would stay or go. And while there is no doubt that there were individuals that chose to leave the UK, there were also Non-Doms who stayed. Here, we look at the UK tax future of those who remained or even became UK tax resident for the first time in 2025/26.
From 6 April 2025, UK tax resident individuals previously holding Non-Dom status will broadly be in taxed in one of three ways:
- Income and capital gains tax payable on UK sourced income and gains only, and UK Inheritance Tax (“IHT”) due on UK situate assets only – these are known as FIG users;
- Income and capital gains tax payable on worldwide income and gains, and IHT due on UK situate assets only – these are known as taxable short-term residents; and
- Income and capital gains tax payable on worldwide income and gains, and IHT due on worldwide assets – these are known as taxable long-term residents.
FIG Users
Who?
Individuals within their first four tax years after becoming UK tax resident following a period of non-UK residence of at least ten tax years.
How?
FIG users are taxable on their UK income and gains only, with broadly all foreign income and gains (“FIG”) exempt from UK tax (subject to a claim), irrespective of whether the FIG is remitted to the UK, i.e., brought to or enjoyed in the UK.
Arguably, the FIG regime is more flexible and simpler than the old remittance basis rules.
Previously, Non-Doms were required to keep precise records and segregated accounts to avoid making taxable remittances of funds sheltered under the remittance basis. While this will continue in respect of FIG arising before 6 April 2025 for individuals who have previously claimed the remittance basis, any individual arriving in the UK for the first time on or after 6 April 2025 can dispense with such onerous banking requirements.
The downsides of the FIG regime include the requirement to disclose on the annual tax return the income and gains that qualify for the regime as well as the far shorter four-year period that is available. Once the 4-year FIG period lapses, the taxpayer would be considered to be a taxable short-term resident.
Individuals that intend to remain in the UK after the 4-year FIG period will want to start planning, ideally at the start of their fourth year of tax residence.
Taxable short-term residents
Who?
Individuals that have been UK tax resident for between five and nine tax years following a period of non-UK residence of at least ten tax years.
How?
From year five of tax residence, the FIG regime will no longer be available and taxable short-term residents will be subject to UK taxation on their worldwide income and gains. This can also include the income and gains of any non-UK entities to which such an individual is beneficially entitled. However, taxable short-term residents will not be subject to IHT on their worldwide estate, and instead their IHT exposure will be limited to their UK situs assets only.
It will be important for taxable short-term residents to decide whether they will leave the UK before becoming a long-term resident. If they wish to do so, the individual will need to avoid remaining tax resident in year ten, otherwise, they will become a long-term resident irrespective of whether they remain UK tax resident in year 11 or not.
Individuals that intend to leave before their tenth year of tax residence may wish to limit their income and gains, having either accelerated their FIG as much as possible under the FIG regime, or if the FIG regime has never been available to them, using the Temporary Repatriation Facility (“TRF”) to remit earlier year FIG at the favourable rate of 12% in the 2025/26 and 2026/27 tax years (or 15% in 2027/28). Alternatively, a taxpayer could consider altering their investment strategy to minimise income and gains arising while they are UK tax resident. Examples include, amongst others, offshore bonds, non-reporting funds and fixed-term deposits that pay interest at a point where it is expected that the taxpayer will be non-UK tax resident.
Taxable long-term residents
Who?
Individuals that have been UK tax resident for 10 out of the previous 20 tax years and are UK tax resident (but please note that the concept of long-term resident for IHT purposes applies to individuals after they have ceased to be UK tax resident).
How?
For Income Tax and Capital Gains Tax purposes, long-term residents are taxed the same as short-term residents. However, long-term residents will also be within the scope of UK IHT on their worldwide estate (instead of UK situated assets only).
For individuals that have settled trusts, the settlor becoming a long-term resident will also have IHT implications for the assets of such trusts, and we recommend that advice is sought.
Unlike short-term residents, who are able to leave the UK and become non-resident without any “tax-tail” applying, long-term residents will need to consider the length of their tax-tail and how many years they will remain within the scope of UK IHT.
Long-term residents that have been UK tax resident for between 10 and 13 of the previous 20 tax years will have this IHT tax-tail for a further three tax years after ceasing UK residence. This will increase the longer an individual remains in the UK, up to a maximum of 10 tax years.
Individuals that intend to remain tax resident in the UK for the foreseeable future may wish to explore using either Personal Investment Companies (“PICs”) or Family Investment Companies (“FICs”) to take advantage of the more favourable rate of Corporation Tax and assist with passing wealth to the next generation while retaining control over the assets.
Contact us
Please note that while the above categories will cover a broad range of individuals, each person’s tax affairs are unique and should be considered on a case-by-case basis. It should also be noted that non-domicile status will continue for the purposes of various Double Taxation Treaties. If you would like to discuss any of the above in more detail, please contact us for further advice.
Jon Elphick, BA (Hons), ATT (Fellow), ADIT
Managing Tax Partner
Email: jelphick@mdaviesassociates.com
Telephone: + 44 (0) 203 770 5602
Nick Tayler, BA(Hons), CA, CTA
Senior Tax Manager
Email: ntayler@mdaviesassociates.com
Telephone: + 44 (0) 203 770 5605