Abolition of Non-Dom Status
The UK government’s recent announcement to abolish the current non-domicile (non-dom) tax status from 6 April 2025 signals a landmark shift in financial planning for individuals previously benefiting from this regime. For over 200 years, the non-dom framework has afforded UK residents with permanent homes abroad significant tax advantages. However, the proposed replacement—a residence-based test governing foreign income and gains (FIG) and inheritance tax (IHT)—introduces new complexities for those navigating the UK’s tax system.
At Soteria Trusts, we understand the challenges these changes pose. Proactive and informed strategizing will be essential for those impacted to secure their wealth and maintain financial stability. Below, we’ll outline the key changes, explore their implications, and share practical insights to help you prepare for this transition.
What is Changing?
The new LTR (Long Term Residence)
Under the proposed regime, an individual will be classified as a “Long-Term Resident” for a specific tax year if they have been a UK tax resident for 10 or more of the preceding 20 tax years.
This rule, set to take effect from 6 April 2025, implies that an individual will qualify as a “Long-Term Resident” if they have been a UK tax resident for at least 10 tax years between 2005/06 and 2024/25. The significance of this classification lies in its impact on inheritance tax (IHT).
Specifically, for individuals who are not deemed “Long-Term Residents,” their estate may only be subject to IHT on UK-based assets.
However, for those classified as “Long-Term Residents,” their estate could potentially be liable for IHT on both UK and non-UK assets. This change highlights the importance of carefully reviewing residency status and asset structures to ensure compliance and effective financial planning.
Abolishment of Non-Dom Status
From 6 April 2025, a residence-based system will replace the familiar remittance basis for foreign income and gains. Key changes include:
- Foreign Income and Gains (FIG) Regime: A new system offering temporary relief for certain non-UK residents returning to the UK.
- Inheritance Tax (IHT) Reform: Non-doms will now face IHT on worldwide assets if they meet the new residency conditions.
- Rebasing Provisions: Limited updates to capital gains tax rules for individuals who previously claimed the remittance basis.
These reforms aim to create a fairer tax structure. However, they also demand a fresh approach to planning for individuals with non-dom status, particularly for those managing offshore trusts or extensive global asset portfolios.
Introduction of the Four-Year FIG Regime
The FIG regime will allow qualifying individuals a four-year window of tax relief on foreign income and gains. Key features include:
- Eligibility applies to those who have been non-UK residents for at least the previous 10 tax years before becoming UK residents.
- No tax liability on foreign income and gains or distributions from non-resident trusts during this period.
- A claim must be filed with HMRC, and opting into this regime will lead to the loss of income tax allowances and annual capital gains tax exemptions.
- After four years, individuals will be taxed on worldwide income and gains on an arising basis like other UK residents.
Changes to Offshore Trusts
Non-UK income and gains generated by trusts will no longer remain protected. Rather, they will become taxable on the settlor or transferor as they arise. This rule also applies to income from underlying companies related to the trust, potentially exposing settlors to significant tax liabilities.
IHT Residency-Based Rules
The new system extends IHT to worldwide assets by introducing a “10 out of 20 years” residency rule. Non-doms who have been UK-resident for at least ten out of the previous 20 tax years will face IHT on global assets for the duration of their residency and up to ten years after leaving the UK.
For those already planning for IHT, this rule adds a layer of complexity that requires meticulous evaluation of asset structures, particularly for real estate and business portfolios.
Implications for Non-Dom Individuals
The changes are far-reaching, requiring immediate attention and tailored planning.
- Enhanced Exposure to Tax
Individuals used to enjoying remittance basis relief will now see increased global reporting obligations. Assets, income, and gains previously sheltered outside the UK may now fall under HMRC’s scope.
- Greater Administrative Burden
Claiming FIG relief or handling the Transitional Repatriation Facility (TRF) will require rigorous record-keeping. Any compliance errors could lead to significant penalties.
- Impact on Succession Planning
With the extended IHT residency rules and reduced exclusions for trust assets, non-doms must reconsider how trusts and offshore structures factor into their estate plans.
- Trust Complexity
Non-doms relying on offshore trusts must reassess their efficiency under the new rules, particularly given the inclusion of trust income and gains in annual tax liabilities.
- Loss of Rebasing Opportunities
Individuals domiciled or deemed domiciled before 6 April 2025 will miss out on capital gains tax rebasing for non-UK assets, limiting the ability to optimize tax positions upon asset disposals.
Preparing for the New Regime
These upcoming reforms underline the importance of seeking bespoke financial advice. Here’s how non-doms can take action now to protect their futures:
- Review Residency and Domicile Status
Your current domicile remains relevant in determining liabilities for earlier tax years and transitional relief options. Understanding your exact position can help you maximize available benefits.
- Audit Trust and Asset Structures
Offshore trusts and asset portfolios require close evaluation to ensure compliance while mitigating tax exposure. Adjustments may be necessary to align with the upcoming rules.
- Plan for the FIG Regime
For those eligible, the four-year FIG window represents an opportunity. Early planning, however, will be essential to avoid costly administrative errors.
- Explore the Temporary Repatriation Facility
The TRF offers a potential route to repatriate funds at reduced tax rates. The rates—gradually increasing from 12% to 15%—can be advantageous if used strategically.
- Update Estate Planning Strategies
Updating Wills, trust deeds, and estate plans is imperative, with IHT implications extending to global assets. Tailored advice can help you preserve wealth for future generations.
- Seek Expert Guidance
The evolving tax landscape requires proactive, informed assistance from professionals. A trusted advisor with expertise in UK tax law and international markets can make all the difference.
How Soteria Trusts Can Help
At Soteria Trusts, we specialize in navigating the complexities of regulatory changes, ensuring our clients are empowered to take control of their wealth. With the abolition of non-dom status on the horizon, we stand ready to help you explore every opportunity to protect your interests. Whether you need to assess the impact on your assets or develop a robust plan for the future, our dedicated team provides practical, tailored solutions designed for your unique circumstances.
If you’d like to learn more about these changes or discuss your financial strategy, reach out to us today to schedule a consultation. Together, we can guide you through even the most challenging transitions with clarity and confidence.
By acting early and strategically, you can ensure that your financial plan remains strong, no matter what changes lie ahead.
Contact Soteria Trusts today for an initial consultation!
