Navigating the New Tax Landscape: 7 Key Considerations for UK Residents Amid Changes to the Non-Dom Regime

Written by Communications at MASECO

In response to recent changes in the UK tax framework, significant reforms are set to impact individuals previously classified as “non-domiciled” (non-dom) or “deemed domiciled.” This article summarises key insights from a recent webinar hosted by George King, Senior Wealth Manager at MASECO, in conversation with Andrea Solana, Partner and Head of Advanced Planning at MASECO, and Terence Sivakumar, Tax Reporting Manager. The discussion provides a detailed breakdown of the main reforms, their potential effects on taxpayers, and strategies for navigating the new tax landscape.

End of the Non-Dom Regime: A New Residence-Based System

Starting April 2025, the UK’s long-standing non-dom tax regime will be replaced with a residence-based taxation model. Key highlights include:

Worldwide Income and Gains: All UK residents will be taxed on their worldwide income and gains while resident in the UK.
Inheritance Tax (IHT): Worldwide assets will be subject to UK IHT if the individual breaches ten years (out of the prior 20) of residence in the UK.

This marks a significant shift from the historical focus on domicile status, meaning UK residents, regardless of origin, will face a consistent tax treatment on international assets and income streams.

Transitional Reliefs for New and Returning Residents

To cushion the impact of these changes, transitional reliefs are available for both new UK residents and returning expatriates, namely, the Foreign Income and Gains (FIG) Regime:

- Brand new UK residents from April will be eligible for a temporary exemption on their foreign income and gains for the first four years of UK tax residency.
- Additionally former residents or UK citizens who return after a consecutive 10-year non-resident period will also qualify for this 4-year exemption. Foreign income and gains generated during this period can be brought into the UK without additional taxes.

Rebasing Election for Current Non-Doms

- Individuals who have been UK residents for more than four years by April 2025 will be taxed on their worldwide income and gains.
- Those currently non-domiciled may benefit from a rebasing relief, allowing capital assets owned as of 5 April 2027 and still held as of 6 April 2025 to be rebased to the value of the assets as at 5 April 2017, potentially reducing UK capital gains tax exposure on a future sale.

Temporary Repatriation Facility (TRF) for Unremitted Foreign Gains

To aid with the transition, the Temporary Repatriation Facility (TRF) provides a relief mechanism for those with unremitted foreign gains and income earned before April 2025. With the TRF, foreign income and gains can be ‘designated’ or remitted into the UK and taxed at a flat 12% tax rate for tax years 2025/26 and 2026/27 (with the rate then increasing to 15% for the 2027/28 tax year).

Designated amounts do not need to be immediately remitted to the UK. But, designating amounts of foreign income and gains in the TRF window then allows those amounts to be remitted in priority of other income and gains in a mixed fund held offshore.

Any amounts not designated within the TRF window but later remitted to the UK will be taxed under the current rules, meaning they will be subject to either the relevant income tax rate or capital gains tax rate depending on what is being remitted.

Implications for Non-UK Settlor-Interested Trusts

The new regime also changes how non-UK settlor-interested trusts are treated for income and capital gains tax purposes. A settlor interested trust is one with a settlor who remains UK resident and the settlor, their spouse, their children and/or grandchildren can benefit.

For trusts where the settlor, their spouse, or minor children are beneficiaries: the settlor (or creator of the trust) will be subject to UK taxes on the trust’s underlying income and gains while they remain UK residents.
For trusts where the settlor’s adult children or grandchildren are sole beneficiaries, only capital gains tax will apply on underlying capital gains, not income tax.

Certain transitional provisions can help mitigate tax exposure in the short term. For example, the TRF provisions can apply on benefits received from the trust in three-year TRF window to the extent that these benefits can be matched to pre-6 April 2025 income. Equally, the FIG regime may also apply where a benefit is received from the trust in the first four years of residence.

UK Inheritance Tax (IHT) Exposure and Long-Term Residency

Inheritance tax (IHT) is an increasingly important area of focus, particularly given the relatively low UK IHT threshold (£325,000) compared to the U.S.

With the abolition of the deemed domicile classification and move to a residence-based system, individuals’ worldwide assets will come within the scope of UK IHT once they become ‘long term residents’ in the UK. An individual will be considered long-term resident once they breach 10 years of residence (out of the previous 20) in the UK. Once you breach long-term residence in the UK, any future departure from the UK will not immediately relieve the IHT exposure. There will be a ‘tail’ for IHT purposes:

- For individuals who spend 10-13 years in the UK, they will remain within the scope of UK IHT on worldwide assets for 3 tax years following their departure from the UK.
- This tail then extends by one more year for every additional year spent in the UK prior to departure.
- That maximum limit for the tail is 10 years, which will apply to anyone who has spent at least 20 years in the UK.

Existing settlor interested excluded property trusts settled before 30 October 2024 may come within the scope of the relevant property rules, meaning they will be subject to the ten-year anniversary charge once the settlor becomes a long-term resident in the UK, and equally be subject to the exit charge if the settlor later loses long-term resident status.

Any settlor interested trusts settled on or after 30 October 2024 that retain any reservation of benefit may be in the scope of the relevant property rules and also remain includable in an individual’s personal estate at death should they remain long-term resident in the UK.

Key Tax Planning Considerations

As these reforms reshape the UK tax landscape, individuals impacted by the changes should consider the following actions to help optimize tax outcomes:

Timing Asset Sales: For those within their first 4 resident tax years, timing asset sales strategically may yield tax advantages.
Remittance Basis election for 2024/25: consider whether gains should be accelerated in the current year, electing for remittance basis of taxation, and then remitting/designating under TRF at lower rates in 2025/26.
Maximize TRF Opportunities: Take advantage of the TRF’s lower tax rate to repatriate historical unremitted foreign income and gains to build clean capital in the UK.
Reassess Trust Structures: Review trust beneficiaries to account for the evolving tax rules.
Plan for IHT Exposure: Those with global assets should assess potential IHT impacts and plan for future residency or asset transfer as part of an overall tax strategy.

Final Thoughts

These updates mark a pivotal shift toward a simpler, residence-based tax system in the UK. While this may streamline some processes, individuals currently or potentially affected by the non-dom changes should seek tax advice to navigate potential risks and maximize available reliefs. By staying informed and proactive, taxpayers can optimize their position within this new framework, balancing compliance with financial efficiency. Click here to watch the webinar recording.

The Legal Stuff

MASECO Private Wealth is not a tax specialist. This article does not take into account the specific goals or requirements of individuals and is not intended to be, nor should be construed as, investment or tax advice. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy. Information about potential tax benefits, including the levels, bases of and reliefs, from taxation is based on our understanding of current tax law and practice and may be subject to change. We strongly recommend that every client seeks their own tax advice prior to acting on any of the tax mitigation opportunities described in this article. The tax treatment depends on the individual circumstances of each individual and may be subject to change in the future.

Nothing in this document constitutes investment, tax or any other type of advice and should not be construed as such.

The views expressed in this article do not necessarily reflect the views of MASECO as a whole or any part thereof.

This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.

This document does not constitute a recommendation, offer or solicitation to buy or sell any products or to adopt an investment strategy.

Although the information is based on data which MASECO considers reliable, MASECO gives no assurance or guarantee that the information is accurate, current or complete and it should not be relied upon as such.
Past performance is not a reliable indicator of future results.

MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is established as a limited liability partnership under the laws of England and Wales (Companies House No. OC337650) and has its registered office at The Kodak Building, 11 Keeley Street, London, WC2B 4BA. The individual partners are Mr J E Matthews, Mr J R D Sellon, Mr A Benson, Mr D R B Dorman, Mr H Q A Findlater, Mr T Flonaes, Mr E A Howison and Ms A L Solana. For your protection and for training and monitoring purposes, calls are usually recorded.

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