What the Change Means in Practice
Beginning 6 April 2025, the UK will remove the long-standing domicile status from its tax system, replacing it with a residence-based regime. Non-UK domiciled individuals must now assess tax liability based on residency, not domicile. This affects Income Tax, Capital Gains Tax (CGT), and Inheritance Tax (IHT). (gov.uk)
Key Features & Reliefs
- 4-Year Foreign Income & Gains Regime (FIG-Regime): New arrivals (who haven’t been UK resident in the past 10 consecutive years) get 100% relief on foreign income and gains in their first 4 tax years of UK residence. (gov.uk)
- Overseas Workday Relief (OWR): Reformed to align with the FIG regime. Allows relief for UK employees working duties outside the UK, subject to certain limits (the lower of £300,000 or 30% of net UK employment income). (gov.uk)
- Capital Gains & Remittance Basis: Remittance basis abolished; current & past users can rebase foreign assets held as of 5 April 2017. Gains accruing post 6 April 2025 will be taxed as they arise. (gov.uk)
- Temporary Repatriation Facility: Former remittance-basis users may bring in and designate prior foreign income/gains at reduced rates (12% for first two years; 15% in final year) for 3 tax years. (gov.uk)
- Residence-Based IHT: The domicile-based IHT system replaced with a long-term residency test. After 10 out of last 20 years of UK residence, individuals are “long-term UK residents” and non-UK assets may become liable. (gov.uk)
Who is Most Affected?
| Person | Impact |
|---|---|
| New arrivals without UK residence in past 10 years | Benefit most from the 4-year FIG regime. |
| Long-term residents (10 years in 20) | Lose preferential treatment; foreign income/gains taxed like UK residents. |
| Employers & payroll agents | Must adapt to remove reliance on domicile for reliefs; oversee new PAYE obligations for overseas work. |
Practical Steps and Examples
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Example: Maria, originally from Spain, moves to London on 1 May 2025. She hasn’t been UK resident in the previous 10 years. Under the new regime, her foreign dividends (e.g. €20,000 pa) will be relieved from tax for her first four UK tax years (2025-26 through 2028-29), even if she brings the income into the UK. After that, tax is payable on all worldwide income.
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Employees: If you perform part of your job overseas, you may claim OWR if eligible. If your pay package includes overseas duties, ensure payroll knows to apply updated rules; don’t rely on remittance.
Actionable Advice
- Assess past residence history immediately—know if you’re eligible for FIG.
- Review foreign assets and gains held before 5 April 2025; consider using the Temporary Repatriation Facility or rebasing where possible.
- Engage your employer/paye/es or agent to understand overseas work duties; ensure correct tax treatment under updated OWR regime.
- For inheritance planning, understand if you will become a long-term UK resident; consider how non-UK assets might be exposed to IHT.
Risks & Considerations
- Missed deadlines to designate under the repatriation facility could lead to higher tax.
- Substantial foreign income/gains post-April 2025 means more mandatory reporting and tax payments.
- Non-UK assets now more likely to face UK IHT exposure if long-term residence is met.
These reforms represent a shift toward simplification, fairness, and alignment with other OECD norms—though they do tighten exposure for foreign income and assets.