Non-Dom Tax Residency Rules

Non-Dom Tax Residency Rules

Understanding Your Status in the UK

Non-Dom Tax Residency Rules

Starting 6th April 2025, the UK government replaced the non-domiciled tax regime with a new residency-based system. Individuals previously classified as non-domiciled will now follow a new approach for taxing foreign income and gains, marking the end of the remittance basis. With these reforms now in place, it’s crucial to reassess your residency position and review your overall tax strategy. Understanding how the new rules apply to your personal circumstances can help you stay compliant, avoid unexpected tax bills, and make informed financial decisions moving forward.

Understanding Your Domicile Status

Domicile and residency are two distinct legal concepts, and understanding the difference is essential for determining your UK tax status.

A person is considered non-domiciled in the UK if their permanent home, or the place they consider home, is outside the UK. Your residency status, however, is determined by an individual’s physical presence within the country. This is typically based on the number of days spent in the UK throughout the tax year.

Your residency status determines how the UK taxes your worldwide income and gains, while your domicile status influences how the UK treats your foreign income and assets, particularly under the former remittance basis rules.

Determining Residency Status

Statutory Residence Test

The Statutory Residence Test (SRT) is the official framework used to determine an individual’s UK tax residency for a given tax year. It consists of three main tests:

1. The Automatic Overseas Test
2. The Automatic Residence Test
3. The Sufficient Ties Test

These tests assess various factors, including:

• the number of days spent in the UK,
• the individual’s connections to the UK (such as family, available accommodation, and UK-based work)
• the purpose and frequency of visits.

Once a residency status is determined under the SRT, additional rules come into play to establish the extent of a person’s UK tax liability. UK tax legislation and double tax treaties with other countries may then apply, influencing how you pay tax on income and gains across borders.

What’s Changing for UK Non-Doms?

The UK announced a major shift in how it taxes non-domiciled individuals in the 2024 Autumn Statement. Abolishing the remittance basis of taxation, the government introduced a new residency-based tax regime in its place.

Under the new rules, individuals who move to the UK and haven’t been tax resident here in any of the previous ten consecutive tax years, will now benefit from full relief on foreign income and gains for their first four years of UK tax residency. However, unlike the previous system, you must nominate these amounts each year to qualify for relief. After the four-year window closes, the UK will tax all foreign income and gains on the arising basis. This means you’ll pay tax as you earn or realise them, regardless of whether or not you bring them into the UK.

Implications of Residency for Non-Doms

With the shift to a residency-based tax regime, non-doms who become UK tax residents are now subject to UK tax on their worldwide income and gains after the initial four-year relief period (if eligible). Additionally, once a non-dom has been resident in the UK for more than 10 years, they may become deemed domiciled for inheritance tax (IHT) purposes. As a result, their entire global estate could be liable to IHT charges.

If you set up an offshore trust before becoming deemed domiciled, you may still retain some protections, however the UK has now significantly reduced the tax advantages. Similarly, the government is extending Overseas Workday Relief to match the new four-year foreign income and gains regime, allowing eligible individuals to claim relief for up to four years.

For example, if a non-dom has lived in the UK for 12 years and previously used the remittance basis, they must now pay UK tax on all global income and gains as they arise. Therefore, they could face IHT on worldwide assets, requiring a complete reassessment of their wealth planning strategy.

Seeking Professional Advice

With reforms to the non-dom tax regime, it’s more important than ever to understand the impact to your financial position. Individuals should carefully review their current assets, particularly those in the UK that may have accrued gains. Additionally, individuals should reassess any existing tax structures that may no longer offer the same benefits under the new rules. You should also consider the risk of double taxation, especially if you hold financial interests in multiple countries, and understand how both the UK and foreign tax authorities will treat your assets.

To navigate this complex and evolving landscape effectively, seeking guidance from a qualified tax advisor is crucial. The right advice can not only help compliance, but also identify planning opportunities and structure your affairs tax-efficiently.