While changes to the UK tax rules due to take effect from April 2025, mainly to inheritance tax (IHT), may be driving some non-doms (UK resident non-UK domiciled individuals) to consider leaving the UK, the changes represent a significant relaxation of the UK tax rules for many expats.
Under the current rules, expats who were UK-domiciled when they left the UK remain subject to IHT on their worldwide assets unless they can satisfy the UK Revenue (HMRC) that they have lost their UK domicile, even though they may have been non-UK resident for many years. However, the position will change from 6 April 2025.
From 6 April 2025, an individual's domicile status, or previous domicile status, will be irrelevant. Under the new rules, anyone who has been non-UK resident continually since 5 April 2015 (or before then) will not be subject to IHT on their non-UK assets (subject to some exceptions regarding interests in UK residential property and loans related to UK residential property) regardless of their domicile status. This means that, for example, they will be able to set up a trust and transfer non-UK assets to that trust without a charge to IHT. They will also be able to make gifts of non-UK assets to other family members without a charge to IHT regardless of whether they survive the gift by seven years. In addition, non-UK assets held by them personally or in a trust set up by them will remain outside the scope of IHT unless and until the individual returns to the UK and has been UK resident for 10 years.
Expats also no longer need to be concerned about their connections to the UK, provided they remain non-UK residents. Many expats will have sold their UK home on leaving the UK to minimise their connections to the UK and strengthen the argument that they had lost their UK domicile. As domicile is no longer relevant for tax purposes, this will be less of an issue. Expats may consider re-establishing a home in the UK as there is no longer a concern about the impact that this may or may not have on their domicile status (however, it must be remembered that having accommodation available in the UK is a 'tie' for the UK statutory resident test).
Expats who have been non-UK residents continually for 10 years and become UK residents again will also be able to benefit from the new four-year FIG (foreign income and gains) exemption regime being introduced from 6 April 2025. This means that for their first four years of UK residency, they will be able to claim relief from UK tax on foreign income and gains arising to them personally and any foreign income and gains arising in any trust that they have set up, whenever the trust was set up and even if they can benefit from the trust.
