The end of the domicile era: shifting to a residency-based tax regime

Historically, the UK tax status of an individual was based on their domicile (a common law legal concept). Broadly, this meant that non-doms could be taxed only on their UK income and gains, while foreign income and gains ('FIGs') could be taxed only if remitted to the UK. However, non-doms who had been UK resident for 15 out of the past 20 years became 'deemed domiciled' for all tax purposes.  This made them subject to UK tax on their worldwide income and gains, and also inheritance tax ('IHT') on their worldwide assets.

From 6 April 2025, the UK abolished this domicile-based regime and moved to a residency-based system. This means that individuals will be taxed on:

• Worldwide income and gains (including FIGs) after four years of UK residence, regardless of their domicile. The remittance basis of taxation is no longer available.
• UK IHT on their worldwide estate provided that they have been tax resident in the UK for 10 of the past 20 years.

These changes will likely impact the number of individuals falling within the UK IHT net.

Previously, non-UK assets of non-doms were outside the scope of UK IHT unless they were 'deemed domicile'. Under the new regime, anyone who has been UK tax resident for at least 10 out of the previous 20 tax years will be deemed 'long-term resident', bringing their worldwide estate within the scope of UK IHT. Conversely, non-long-term residents will continue to pay IHT on their UK situs assets only.

Long-term residents who cease UK tax residency will remain within the scope of UK IHT on their worldwide estate for a period determined by their length of prior UK residence. For instance, those resident for 10 to 13 years will remain within scope for three tax years after departure, with the period extending by one year for each additional year of UK residence – up to 10 years if they have been resident here for continuous 20 years.

Given these tax reforms, individuals should review how their affairs may be impacted and reassess their current succession planning measures:

• Asset structuring: individuals should re-evaluate how their assets are structured, considering the expanded scope of UK taxation on worldwide income, gains, and estates.
• Trust review: existing trust arrangements should be examined to understand the new tax implications, particularly for settlor-interested trusts and potential IHT liabilities.
• Residency planning: for those considering a move to or from the UK, understanding the tax residency rules and their impact on tax exposure is crucial.

The abolition of the domicile regime marks a significant shift in UK tax policy. Affected individuals should review their existing arrangements and seek professional advice to ensure compliance and optimise their succession planning. Anyone with concerns about their UK tax exposure should discuss their circumstances with a member of our private client team.