Finance Act 2025 makes major changes to the tax rules for ‘non-doms’. From 6 April 2025, the long-standing non-domicile (non-dom) regime, along with the remittance basis of taxation, is abolished. In its place, the government has introduced a new, residence-based regime that brings the UK’s approach more in line with international norms and reflects the government’s stated aim of simplifying the tax system and ensuring fairness across all taxpayers.

This means all longer-term UK residents will be taxed by the UK on their worldwide income and gains as they arise, rather than (for some non-doms) only when the income and gains are brought into the UK. A temporary repatriation facility will enable former remittance basis users to bring capital representing previous years’ foreign income and gains into the UK with a reduced tax charge. There will also be a new residence-based system for inheritance tax.  New arrivals to the UK will benefit from up to four years of tax exemption on their foreign income and gains. 

This significant policy shift will impact a wide range of individuals, particularly those who have benefited from non-dom status or who rely on complex offshore structures for income or inheritance tax planning.

This article outlines the upcoming changes and what they mean for affected individuals.

Abolition of domicile-based tax preferences

From the 2025/26 tax year, the UK will remove all preferential tax treatment based on domicile status. This includes abolishing the remittance basis, which allowed non-doms to pay UK tax on foreign income and gains (FIG) only when those funds were brought, or ‘remitted’, to the UK.

In effect, this means that individuals who previously claimed non-dom status will, from April 2025, be taxed on their worldwide income and gains in the same manner as any other UK resident, unless they qualify for relief under the new system.

Introduction of a residence-based Foreign Income and Gains (FIG) regime

In place of the non-dom rules, a new residence-based system will apply from 6 April 2025. This system will offer a temporary and generous relief to new UK tax residents who meet specific criteria. Key features include:

• Four-year relief for new arrivals: individuals who become UK tax resident and have not been resident in any of the preceding 10 tax years will be eligible for full relief from UK tax on foreign income and gains for up to four tax years.
• This FIG relief is designed to support genuine newcomers and encourage inward investment and relocation to the UK.
• However, after this four-year period ends, or if individuals do not meet the eligibility criteria, full UK tax will apply to all income and gains on a worldwide basis.

Changes to trust taxation

Under the current system, settlor-interested trusts – used often by non-doms to hold offshore income and gains – can benefit from protection against UK taxation.

From April 2025:

• This protection will be removed.
• Individuals who do not qualify for the new four-year FIG regime (either due to ineligibility or expiry) will see their trust income and gains taxed in full, as if they held the assets personally.
• Trusts set up under the current rules will no longer provide a shield from UK tax, significantly reducing their attractiveness for long-term residents.

The government is also reviewing associated anti-avoidance legislation, such as ‘the transfer of assets abroad’ and ‘settlements’, although any updates to these rules will not take effect until at least the 2026/27 tax year.

Trusts and excluded property status

Currently, excluded property trusts allow foreign assets to remain outside the scope of UK IHT if set up while the settlor was non-domiciled. Under the new rules, these protections will cease.

Importantly, IHT charges arising from deaths before 6 April 2025 will still be assessed under the existing domicile-based rules.

Inheritance tax: a shift from domicile to residence

A major part of the reform also affects inheritance tax (IHT). Currently, IHT is determined by an individual's domicile status, with UK-domiciled individuals taxed on their worldwide estate.

From 6 April 2025, the UK will move to a residence-based IHT system. Individuals will be within the IHT scope if they have been UK resident for at least 10 years before the tax year in which a chargeable event (such as death) occurs. There will be a tail provision, meaning individuals remain within the IHT net for 10 years after they cease to be UK resident. This will apply not just to individuals, but also to trust structures, closing long-standing planning opportunities.

The government plans to engage with tax professionals and affected stakeholders throughout summer 2025. Updates on engagement sessions and draft legislation will be published in due course on gov.uk.

Retention of Overseas Workday Relief 

The government has confirmed that a form of Overseas Workday Relief (OWR) will be retained for eligible individuals – for further details, see Non-domicile reform and overseas workday relief.

OWR currently allows new UK residents who perform work duties abroad to claim relief from UK tax on foreign earnings. While details on how this will interact with the new residence-based FIG rules are still to be confirmed, its continued availability will be welcomed by internationally mobile employees.