The United Kingdom is globally known for The Beatles, afternoon tea, and its passion for football. However, beyond its traditions and customs, it has also stood out as a country with a favorable tax system for non-domiciled foreigners.
This regime, similar to those found in other countries like Malta, allowed these individuals to be taxed only on income generated in the UK, while foreign-sourced income remained mostly exempt from taxation, provided it was not transferred to the country.
However, this scenario will change radically on April 6, 2025, a key date marking the transition to a new tax system in the United Kingdom that will bring an end to the previous regime. This reform signals the end of the non-dom system as we know it.
In this article, we analyze in detail what this transition entails, the main changes introduced by the new system, and the benefits it still offers.
The End of the Old Non-Dom Regime in the UK
The non-dom tax regime, in place in the United Kingdom for decades, allowed non-domiciled tax residents to be taxed only on income and gains generated within the country or on funds remitted to the UK.
This system made the UK an attractive destination for high-net-worth tax nomads seeking to reduce their tax obligations while enjoying the benefits of living in a stable country with advanced financial infrastructure.
The non-dom regime offered foreign residents the ability to be taxed solely on:
- Income generated within the United Kingdom.
- Foreign-sourced income only if transferred to the country (remittance basis).
The new residence regime, which will take effect in 2025, ends the classic non-dom model.
Under this reform, foreign-sourced income and gains generated from April 6, 2025, will be subject to taxation in the United Kingdom. However, new tax residents will enjoy a four-year transition period during which certain exemptions will apply.
The UK’s New Non-Dom: FIG Tax Regime
The FIG tax regime, effective from April 6, 2025, offers a more limited and structured approach to attracting foreign residents, eliminating many of the tax benefits of the old non-dom system. Below are the key features of this reform:
4 Years with 0% Tax for New Residents
Foreign individuals arriving in the UK who have not been UK tax residents for at least 10 consecutive years can benefit from a four-year tax-exempt period. During this time, foreign-sourced income and gains will not be subject to UK taxation, provided they are not transferred to the country.
Inheritance Tax: Applies After 10 Years
Tax residents who have stayed in the UK for 10 consecutive years will be subject to Inheritance Tax on their worldwide assets.
- Initially, only assets located in the UK will be taxed.
- After 10 years of residence, global assets will also be included in the taxable estate.
Changes in Trust Taxation
The use of trusts has been an area of particular interest for tax regulators, and the 2025 reform introduces significant changes in this area.
Under the new regime, income and gains generated by offshore trusts will be directly attributed to the beneficiary if they are a UK tax resident, unless they fall within the four-year exemption period.
Pros and Cons of the New FIG Tax Regime
Pros
- Tax exemption for foreign income for 4 years: Income and gains sourced outside the UK will be tax-free during this initial period.
- Planning opportunities: Possibility to optimize asset sales or income generation during the exemption period.
- Attractive for returning expats: UK citizens returning after 10 years abroad can benefit from the FIG regime.
Cons
- Limited duration: Applies only for 4 years; thereafter, global income and gains are taxed in the UK.
- Higher Inheritance Tax burden: After 10 years as a resident, worldwide assets become subject to this tax, and the obligation persists for 10 years after leaving the UK.
- Trust taxation: Trusts for residents will be taxed on global income and gains.
- Planning costs: The complexity of the new regulations makes professional assistance essential for those residing in or leaving the UK.
Impact on Trusts and Wealth Structures
The 2025 tax reform introduces significant changes affecting offshore trusts, commonly used by non-doms to manage their wealth.
Beneficiary’s Residence
The tax treatment will depend on the beneficiary’s tax residence status. If the beneficiary is a long-term UK tax resident, the trust’s assets could be subject to Inheritance Tax.
Trusts and Inheritance Tax
- Trusts held by long-term tax residents will face a periodic charge of 6% on the value of their assets every 10 years, including assets located outside the UK.
- Trusts created before October 30, 2024, will retain the exclusion of non-UK assets from the taxable estate, provided they comply with current rules.
Exit Rules
When abandoning long-term tax residence status, a “departure charge” will apply to non-UK assets to prevent tax avoidance after benefiting from the system.
Who Will Be Affected by the Changes to the UK Non-Dom?
The tax regime reform in the UK will impact differently those who already reside there and those considering the country as a tax residence option:
Current Tax Residents
Many current tax residents may consider leaving the UK due to the new fiscal landscape. However, it is crucial to consider the reform’s implications, as some charges may still apply even after leaving the UK.
New Tax Residents
Those relocating to the UK can benefit from the four-year tax exemption. However, careful planning from the outset will be critical to maximizing the advantages of the regime and avoiding surprises at the end of the exemption period.
UK Non-Dom Review
The end of the UK’s non-dom regime as we knew it has discouraged those who planned to reside in the country long-term, particularly individuals with international tax structures and large estates.
This news highlights other non-dom regimes, such as those in Malta or Cyprus, as preferred options for tax nomads.
However, an interesting opportunity remains for those interested in living tax-free in the UK for a short or medium term.
Are you interested in obtaining tax residency or setting up a company in the UK?
Or would you prefer a complete analysis of your situation to discover the best option for you?
In either case, we can help!
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From April 2025, global income and gains will be subject to taxation in the UK, except for a four-year exemption period for new residents.
Current and future foreign tax residents, especially those with global income or wealth structures.
