Domicile & Residence Planning

Coming to the UK

We have helped many people and their families prepare for a move to the UK. Specialist tax advice before you arrive can give you peace of mind that you understand what your tax position will be, and tax planning can reduce your tax bill substantially. We can help you to explore the variety of options available to you in order to find the best answer for how you want to come and go from the UK and how you manage your assets.

Following the Autumn Budget, there have been significant changes to the UK non-dom regime.

The current rules remain in place until April 2025 but please seek advice if you are planning to come to the UK or will be remaining beyond that date.

UK Non-Dom rules until April 2025

Basis of taxation in the UK

Residence

UK taxes on income and capital primarily depend on your residence status. If you are not resident in the UK you would only be taxable on UK income and generally not on disposals of UK assets (other than potentially UK property). There is a statutory residence test which sets out the rules to determine whether you are resident in the UK, and these vary depending on whether you are coming to the UK or leaving the UK.

Understanding how the statutory residence test applies to your circumstances is key, and these rules, coupled with the UK’s unusual tax year running from 6 April to the following 5 April, may allow you to make disposals before arrival to fund UK expenditure free of UK tax. It may also be possible to spend substantial time in the UK without becoming tax resident.

Domicile

Where you are not domiciled in the UK, you will only have to pay inheritance tax on UK assets (which includes UK residential property held through companies and trusts). Domicile is distinct from residence. Your country of domicile is not necessarily the country where you have your permanent home or have a substantial connection to and needs to be checked carefully.

If you are not domiciled in the UK you can also claim the remittance basis, which means you would only pay income tax on UK income and capital gains tax on disposals of UK assets. Non UK income and capital gains on non UK assets will only be taxable if these are brought / used – remitted – into the UK. Once you have been resident in the UK for 7 of 9 years you must pay an annual charge of £30,000 to use the remittance basis. This charge increases to £60,000 once you have been UK resident for 12 of 14 years.

Being able to show that you are not domiciled in the UK therefore allows you to potentially structure your affairs in a tax efficient manner. You will be treated as domiciled in the UK once you have been resident here for 15 out of 20 years, but specialist tax advice can allow you to continue to access some of the benefits of the remittance basis even after you have become deemed domiciled.

It is important to take specialist tax advice on your residence and domicile status before coming to the UK to ensure that you take advantage of the current rules that are available to you and to preserve the status of funds that can be brought to the UK without a tax charge.

UK tax return requirements

In the UK you are required to self-assess your tax liabilities. Spouses are subject to independent taxation and should file separate tax returns, which is done by the 31 January after the end of the previous tax year on 5 April. We are happy to help with this process, including registering with HMRC and preparing returns.

Non-Dom rules from April 2025

Foreign income and gains (‘FIG’) regime for new UK residents

• This regime will be available for new UK residents in the first four tax years of UK residence. There is no FIG regime for companies or trusts (but the regime can apply to distributions to UK resident individuals from those overseas trusts or companies).
• Individuals who use this regime will not have to pay UK income tax or Capital Gains Tax (CGT) on FIG that arise in those first four years of UK tax residence, whether or not they bring the FIG to the UK.
• New arrivals can only benefit from the FIG regime if they have been continuously non-resident for the 10 years prior to their arrival. The regime will therefore apply to long-term UK expats coming back to the UK following a period of absence of more than 10 years, as well as those born and bred overseas who are coming to the UK for the first time.
• The regime is accessed via a claim on the individual’s tax return for each relevant year. The taxpayer will be allowed to choose whether relief from tax will be claimed on their foreign income, gains or both for the year in question.
• They do not need to claim to relieve all of their foreign income and gains via the FIG regime, but any FIG that are not sheltered by a claim will be subject to tax at the prevailing rates for the year in the usual way.
• Any FIG to be included in the claim must be quantified and disclosed in the individual’s tax return for the year when the FIG arise. Any FIG that are not quantified and disclosed will be subject to tax in the relevant year.
• Types of income and gains that can be sheltered would include dividends, interest, gains on sales of overseas assets and other types of income or gains that can be sheltered by the Remittance Basis, including income and gains from offshore trusts. These could be trust FIG which are assessable directly on the trust’s settlor, or FIG matched with trust distributions or benefits.
• Those using the FIG regime will not have to pay a charge to access it but will lose their Income Tax personal allowance and CGT annual exemption. This is the case whether they claim relief for income, gains or both.

Temporary Repatriation Facility (TRF)

• This relief will be available to those who have made a claim for the Remittance Basis before 6 April 2025. In some good news, the facility will be available for three years instead of two as originally proposed.
• The relief will operate as follows:
• From 2025/26 through to 2027/28, UK residents who claimed the Remittance Basis prior to 6 April 2025 will be able to access the TRF to facilitate remittances of pre-April 2025 income and gains at favourable tax rates.
• Individuals who want to use the TRF will need to designate amounts of overseas income or capital gains, or overseas assets purchased with overseas income or gains.
• Offshore trust distributions that were made to individuals prior to 6 April 2025 and are derived from foreign income and gains can be designated to benefit from the TRF.
• Income or gains designated under the TRF will be charged to UK tax at the reduced rate of 12% in 2025/26 and 2026/27, and at 15% in 2027/28 (the ‘TRF charge’). Designations are made via the tax return for the tax year when the designation is made.
• The TRF charge has to be paid from designated FIG or ‘clean capital’. Payment of the TRF charge from undesignated FIG would result in a remittance that would be taxable at standard UK tax rates.
• Income and gains designated under the TRF do not have to be brought to the UK. Designated amounts do not have to be brought to the UK in the year of designation or any later year unless desired.
• No credit will be given in the UK for any overseas tax paid on the designated amounts. It may be better in some cases for individuals to remit their FIG prior to April 2025 under current rules and benefit from credit for foreign taxes paid, but this must be considered on a case by case basis.
• There will be a simplified set of rules for mixed overseas accounts so that designated amounts will be treated as remitted to the UK first in priority to other amounts.
• Overseas income and gains that arise to individuals during a period of temporary non-UK residence, and which are taxable in the year of their return to the UK under UK tax rules, cannot benefit from the TRF.

Capital Gains Tax rebasing

Rebasing relief will be available for individuals who have made claims for the Remittance Basis in the past. The relief is available to allow the rebasing of personally held foreign assets to their value as at 5 April 2017. The rebasing can be claimed if the following conditions are met:

• The claimant was not domiciled or deemed domiciled prior to 6 April 2025.
• The claimant must also have claimed the remittance basis for at least one tax year between 2017/18 and 2024/25.
• The asset must have been held as at 5 April 2017 and must have been disposed of on or after 6 April 2025.
• The asset must have been outside the UK between 6 March 2024 and 5 April 2025. Care will be needed with movable assets such as art, antiques, valuable cars etc.

Action prior to 6 April 2025 to optimise income tax and CGT position

• Consideration should be given to taking action prior to 6 April 2025 and whether it may be preferable to act in the current tax year or wait for the new regime.
• For those UK resident non-doms who could potentially make a Remittance Basis claim (especially those who have not done so), this would be an option worth considering for 2024/25 to facilitate access to the TRF.
• Current UK residents should review timing of receipt of overseas income and gains to see if these can be crystallised under FIG regime from 6 April 2025 for recent arrivers. UK residents of more than 4 years should review their investments to consider timing of income or gains from those investments. Remittance Basis users could consider crystallising income or gains prior to 6 April 2025 for subsequent designation under the TRF, subject to local taxation in the countries where the assets are located.
• Care would need to be taken with assets that were acquired prior to April 2017, as the asset would need to be held beyond 5 April 2025 in order to benefit from the CGT rebasing opportunity. A comparison would be needed to see whether it is better to sell these prior to 5 April or hold on to them until after that date and use rebasing.
• Any previously held segregated bank or investment accounts set up by non-domiciled individuals should be retained, and reviewed to assist with optimising remittances at beneficial rates under the TRF.
• Those who plan to come to take up residence in the UK, but have been resident in any of the previous 10 years before their arrival, will not be able to benefit from the favourable FIG regime. Those individuals should review timing of income and gains to see whether it would be appropriate to crystallise overseas income and/or gains prior to their arrival. The length of their absence from the UK, as well as local taxation of income or gains in the countries where they arise, will need to be taken into account in reaching a decision.

IHT for individuals

An individual will be a long-term resident for a tax year if they have been resident in the UK for tax purposes for more than 10 of the 20 UK tax years preceding the year under consideration. So, at 6 April 2025, an individual will be a long-term resident if they have been resident in the UK in at least 10 of the tax years from 2005/06 to 2024/25 inclusive.

From 6 April 2025, long-term residents will be subject to IHT on both their UK and overseas assets. Those still in their first 10 years of UK residence will be subject to IHT solely on their UK assets.

Once an individual has become long-term resident, they will remain so until they cease UK residence and will have an IHT ‘tail’ that will ensure they will be subject to IHT for a certain period following their departure. The length of the tail depends on the number of years an individual is resident in excess of 10 years.

• Individuals who have been resident between 10 and 13 years out of the 20 previous years when they leave the UK, will have a 3 year IHT tail.
• Individuals who have been resident for 14-19 years out of the prior 20 years when they leave the UK will have an IHT tail of between 4 and 9 years, with the tail increasing by a year for each additional year of residence between years 14 and 19.
• Individuals who have been resident for 20 or more of the previous tax years when they leave the UK, will have a 10 year IHT tail that will follow them if they cease UK residence.

Those aged 20 or younger will be treated as long-term residents if they have been UK resident for 50% or more of the tax years since their birth. For example, an 18-year-old will be treated as a long-term resident once they have been resident for 9 or more tax years since their birth.

Transitional rules will apply for those who have been resident in the UK, who (although possibly deemed domiciled):

• are still legally domiciled overseas as at 30 October 2024,
• are non-UK tax resident by 2025/26, and
• do not take up UK residence after that.
• Those individuals will have a maximum IHT tail of 3 years after their departure.

Where an individual has gifted non-UK property and is a long-term resident at the date of the gift, this gift will be treated as part of their estate if they die within 7 years of the gift and subject to IHT on their death, even if they are no longer a long-term resident at the date of their death.

The spousal exemption will be retained and available for spouses who are both long-term resident. Gifts from a long-term resident spouse to a spouse who is not long-term resident will be capped unless the recipient makes an election to be treated as a long-term resident. The effect of making that election would be that the electing spouse would be treated as long-term resident until they have been non-UK resident for at least 10 consecutive tax years.

It has been confirmed that the new rules will not affect the operation of the IHT Double Taxation Agreements that the UK has with other countries eg the UK/India IHT DTA. This will be good news for those who are resident in the other countries under the terms of those IHT DTAs.

Action to be taken prior to 6 April 2025 to optimise IHT position

• Those who are not yet deemed domiciled, and who are using the Remittance Basis, should consider making gifts of overseas assets prior to 5 April. This would allow the gifted assets to remain outside their estate with no 7-year IHT runoff. It would also mitigate the need to pay Capital Gains Tax on any gain that would arise when they make the gift (based on the difference between the value of the asset when they acquired it and its value at the date of gift).
• Those who are not long-term tax resident (within the definition of the new proposals) should review their asset position prior to 5 April to check for any overseas assets they are considering gifting, and to make any such gifts prior to completing 10 years of UK residence.

IHT and offshore trusts

Under current rules, the application of IHT to offshore trusts relates to the domicile position of the settlor, at the time the trust is settled. Trusts settled with overseas assets by non-domiciled and non-deemed domiciled individuals, are currently treated as ‘excluded property’ trusts. Excluded property trusts are outside the scope of IHT. Any UK assets held in a trust cannot be excluded property and would always be subject to IHT even if they are held within trusts whose assets are otherwise comprised of excluded property.

From April 2025, the IHT position for trusts will be subject to the UK residence position of the settlor.

Accordingly, trusts assets will only fall outside the scope of IHT if

• they are overseas assets, and
• the settlor is not a long-term resident at the time when an IHT event occurs

As a result of the new rules, trusts can move in and out of the scope of IHT in line with changes to the settlor’s UK residence position.

The IHT position of trusts will further depend on whether the trust was settled prior to Budget Day on 30 October 2024 or was settled or funded on or after that date.

Trust settled and funded pre-30 October 2024

• Trusts will fall within IHT ‘relevant property’ regime once the settlor has been UK resident for 10 years.
• IHT could potentially apply
  • • every 10th anniversary of the date when the trust was created,
    • when assets exit the trust, or
    • when the settlor ceases to be long-term resident
• Trusts will not be caught by the Gift With Reservation of Benefit (GWROB) rules. This means that the trust assets will not be treated as part of the settlor’s estate for IHT in addition to IHT being applied to the trust assets under the relevant property regime).

Trust settled or funded on or after 30 October 2024

As for trusts settled or funded prior to 30 October 2024, from 6 April 2025 IHT will apply based on the UK residence position of the settlor. In the same way as for trusts settled and funded prior to 30 October 2024:

• trusts will fall within IHT ‘relevant property’ regime once settlor has been UK resident for 10 years.
• IHT could potentially apply on the three occasions of charge set out above.

However, if the settlor can benefit from the trust (or could potentially benefit ie has not been irrevocably excluded), the assets held within the trust will be caught by the GWROB rules and will be treated as part of the settlor’s estate for IHT purposes. IHT would apply at 40% on the settlor’s death accordingly. This is in addition to the application of IHT to the trust assets under the relevant property regime.

If further assets are settled on pre-30 October trusts, any such additions will fall within the GWROB regime.

Position for trusts settled by UK domiciliaries who are non-UK resident

• Trusts with UK domiciled settlors are currently within the relevant property regime and thus are subject to IHT periodic charges and exit charges.
• If the settlor is a long-term non-resident, the trust will fall outside the IHT regime with effect from 6 April 2025.

As a result of the change in status of the trust from relevant property to excluded property, an exit charge will apply to the value of the trust fund as at 6 April 2025. Settlors and Trustees will need to ensure that there is sufficient liquidity to meet an exit charge in this event.

Action to be taken prior to 5 April 2025 to optimise IHT position

• Individuals who are settlors of offshore trusts will need to review their position prior to 5 April, to see if they will be treated as long-term residents. They will then need consider what action they could take to shelter the trust assets from the UK IHT net.
• UK resident settlors of offshore trusts who are not yet long-term resident, and who do not intend to remain resident in the UK for many years, may want to consider accelerating a departure prior to becoming long-term resident. A departure after 10 years of residence would result in an exit charge applying to the value of the assets in the trust. This is because the residence of the trust follows the residence position of the settlor under the new rules.

Leaving the UK

If you are thinking of leaving the UK, we can advise you on your residence status, the best date on which to choose to leave and the interaction with the tax position in your destination country. You may still have assets in the UK such as the family home or a business or rental property and so you might still have filing obligations, and you may need to preserve any reliefs available on those assets.

As a member of GMN International, we can also liaise with firms in that network to help make your move as simple and easy as possible.

How we’ve helped:

• Advising a family coming to the UK on how to set up their bank accounts before they arrive to ensure that they could bring the maximum amount of money into the UK without triggering unwanted tax liabilities. We helped them identify which assets to sell in order to fund UK expenditure in the most tax efficient way. Finally we clarified the tax status of the assets that they retained, and how best to hold them going forward.  This included how to fund and hold their family home and advising them on whether they should dispose of their pre-existing property.
• Advising on how to fund and hold a UK family home, and whether they should dispose of their pre-existing property.
• Advising a UK resident and domiciled family on permanently emigrating from the UK while retaining their UK business interests
• Advising a wealthy European family on UK residence and domicile issues covering the different requirements of the family members with differing levels of exposure to the UK.
• Helping a UK resident but non-domiciled family to position themselves for a possible exit from the UK in anticipation of a possible sudden change of business circumstances.
• Helping a dual resident individual to establish which country of residence takes precedence under the double taxation agreement.