UK Non-Dom Inheritance Tax Changes April 2025: Impact on HNIs and Estate Planning

UK non-dom tax changes from April 2025 end the remittance basis, taxing worldwide income & assets. HNWIs face new IHT rules. Learn how it impacts estate planning & trust protections. Stay compliant!

Introduction

For decades, the UK’s non‑domicile (“non‑dom”) regime has allowed wealthy foreign residents to live in Britain while paying UK tax only on their UK‑sourced income. In contrast, income and gains from overseas assets were either untaxed or taxed only upon remittance to the UK. This arrangement has long been a cornerstone of the tax strategy for high‑net‑worth individuals, particularly for those with substantial overseas investments. However, in a move designed to ensure fairness and boost public finances, the government is rolling out significant changes to the rules governing non‑dom status. Effective from April 6, 2025, these reforms will end the long‑standing remittance basis and shift to a residence‑based system, exposing individuals who qualify as “long‑term residents” to UK inheritance tax on their worldwide assets.

Understanding the UK’s Non-Domicile (“Non-Dom”) Regime

The UK’s non-domicile (non-dom) regime allowed wealthy foreign residents to live in the UK while only paying tax on UK income. Foreign income and gains were taxed only if brought (remitted) into the UK. This meant non-doms could legally avoid UK taxes on overseas wealth, making it an attractive option for high-net-worth individuals with global assets.

What’s Changing in UK Non-Dom Tax 2025? A Breakdown

Abolition of the Remittance Basis

Under the current system, non‑dom individuals who have been UK residents for less than a specified number of years can choose the remittance basis. This means that they are taxed only on income and gains arising in the UK or brought into the UK. However, as of April 6, 2025, this option will be abolished for those who have been UK residents for more than the prescribed period. Instead, all income and gains—whether generated domestically or abroad—will be taxed as they arise. For individuals who have enjoyed significant tax planning advantages by keeping overseas income out of the country, this represents a fundamental shift in tax liability.

Transition to a Residence‑Based Tax System

The government is replacing the concept of domicile with a focus on residence. Under the new system, an individual’s tax status will be determined solely by their residency. In practical terms, if you become a UK tax resident and continue to be so for a prolonged period (typically 10 out of the last 20 years), you will be classified as a “long‑term resident.” Once in this category, your worldwide assets—including those held offshore—will be subject to UK inheritance tax. This is a significant departure from previous rules where non‑dom status allowed many individuals to shield their foreign earnings from UK taxation.

Changes to Inheritance Tax (IHT)

Inheritance tax is one of the most critical components of these reforms. Under the new regime, long‑term UK residents (those who have been resident for 10 or more years) will have their worldwide estate subject to inheritance tax upon death. For those who have not been in the UK long‑enough, IHT will continue to apply only to assets located in the UK. However, after a certain threshold, even non‑UK assets will fall under UK tax rules if you are deemed a long‑term resident. Key points include:

• Worldwide Asset Exposure: Long‑term residents will be liable for IHT on all assets—both UK‑sited and overseas.
• Residency Duration and the “Tail Provision”: Even if you leave the UK after being a long‑term resident, you might continue to be subject to IHT on your worldwide assets for several years after departure. For example, if you have been resident for between 10 and 13 of the previous 20 years, your estate will be in the IHT net for an additional three years; this “tail” increases by one tax year for each extra year of residence.
• Elimination of Inheritance Tax Exemptions for Trusts: Trusts established after April 2025 will lose many of the tax advantages that have previously allowed non‑doms to shelter income and gains. For trusts established before the change, some transitional relief may remain, but increased scrutiny is expected moving forward.

Impact on Trusts

Trusts have long been a tool for estate planning, especially among non‑doms seeking to protect assets from UK tax liabilities. Under the new rules:

• New Trusts: Trusts set up after April 2025 will see income and gains taxed on an arising basis for UK‑resident settlors. This means that as soon as income or capital gains are generated within the trust, they are taxable, removing a significant tax shelter.
• Pre‑Existing Trusts: While some existing trusts will retain limited protections, they may face increased administrative scrutiny and potential tax liabilities if the settlor’s residency status changes.
• Rebasing of Foreign Assets: Transitional provisions may allow for the rebasing of foreign assets held in trust for capital gains purposes. However, these measures are temporary and subject to complex rules that require careful planning.

Who Is Affected by These Changes?

The revised tax regime is primarily aimed at high‑net‑worth individuals who have significant overseas assets and income. This includes:

• High‑Net‑Worth Individuals and Families: Those with extensive investments abroad who have traditionally benefited from the remittance basis will now face tax on worldwide income and gains. The potential increase in tax liability could have major implications for estate planning and asset protection.
• Family Business Owners: Many non‑doms use the regime to protect the wealth accumulated in family businesses or through investment trusts. With the changes to IHT and the loss of trust protections, family business owners may see their legacy assets become subject to higher tax rates, leading to complex planning challenges.
• Estate Planners and Tax Advisers: Financial professionals will need to reassess existing structures and develop new strategies to mitigate the impact of the tax changes. Clients will require advice on whether to restructure trusts, accelerate certain asset transfers, or even consider relocating assets to jurisdictions with more favorable tax treatments.
• International Expats and Non‑UK Residents: For those planning to move to or from the UK, these changes could significantly alter the calculus of residence. New UK arrivals will benefit from a temporary exemption on foreign income for the first four years, but after that, worldwide taxation will apply, influencing decisions on whether to make the UK their long‑term home.

How Do These Changes Impact Your Estate Planning?

Increased Tax Liability on Worldwide Assets

Under the new residence‑based system, long‑term UK residents will see their overseas assets included in their taxable estate. This change could result in significantly higher inheritance tax bills if not carefully managed. Estate planners will need to factor in the following:

• Timing of Transfers and Gifts: One strategy to mitigate the impact is to accelerate planned gifts or transfers of wealth before you become a long‑term resident, thereby potentially avoiding the imposition of UK IHT on those assets.
• Use of Trusts and Protective Structures: Although trust protections are being eroded, careful restructuring of existing trusts may still offer some tax benefits. For example, establishing trusts before April 2025 might preserve certain exemptions, provided that they are managed carefully during the transitional period.
• Asset Diversification and Jurisdictional Considerations: Diversifying assets across multiple jurisdictions might help reduce overall tax exposure. However, this approach must be balanced against potential double‑taxation issues and the complexity of multi‑jurisdictional tax planning.

Strategic Use of Transitional Measures

The government has provided a few transitional provisions to ease the shift from the old to the new system. These include:

• Temporary Repatriation Facility (TRF): This facility allows individuals who have previously claimed the remittance basis to designate and remit foreign income and gains at a reduced tax rate for a limited period (12% for the first two years and 15% in the third year). For many high‑net‑worth individuals, this provides a short‑term opportunity to bring previously untaxed income into the UK without incurring the full tax rate immediately.
• Rebasing Provisions: For capital gains purposes, there may be an option to rebase the cost of foreign assets to their market value as of a specified date (for example, 5 April 2017). While this measure can help reduce future CGT liabilities, it is complex and will require detailed advice from tax professionals.

Reconsidering Residency

For some, the new rules may prompt a reassessment of residency plans.

• Temporary vs. Permanent Residence: The new regime introduces a “tail” of IHT liability even after you leave the UK if you have been a long‑term resident. This may lead some individuals to consider whether the long‑term benefits of staying in the UK outweigh the increased tax burden.
• Planning for Migration: Conversely, if you are planning to leave the UK, you may need to time your departure carefully to minimize the IHT “tail” liability. For example, by ensuring you are non‑resident for a full 10 years, you might avoid having overseas assets pulled into the UK IHT net.

Practical Steps to Mitigate the Impact

Given the complexities of the new tax rules, proactive planning is essential. Here are some practical steps you might consider:

• Engage a Specialist Adviser: Consult with tax advisers and estate planners who have deep expertise in UK non‑dom and international tax planning. They can help you understand your current position, evaluate potential liabilities, and develop a bespoke strategy.
• Review Your Current Structures: If you have existing trusts or estate planning vehicles, review how they will be affected. It may be beneficial to restructure or even wind down certain trusts before the new rules take effect.
• Accelerate Gift Planning: If you have planned gifts or wealth transfers, consider accelerating these before you become a long‑term UK resident. Doing so might allow you to transfer assets out of your taxable estate at lower tax rates.
• Consider Diversification: Evaluate the possibility of diversifying your assets into jurisdictions with more favorable tax regimes, bearing in mind that this must be balanced against the risk of double taxation.
• Monitor Transitional Provisions: Stay informed about the specifics of the Temporary Repatriation Facility and other transitional measures. These provisions may provide temporary relief as you adjust your long‑term strategy.
• Plan for Residency Changes: If you are contemplating moving to or from the UK, time your change in residency to avoid unnecessary IHT exposure. Careful planning can make a significant difference in the overall tax burden.

Looking Ahead: The Bigger Picture

These tax reforms are part of a broader effort by the UK government to create a fairer, more efficient tax system. By shifting away from the historical non‑dom regime—a policy in place for nearly two centuries—the government aims to ensure that those who benefit from living in the UK contribute appropriately to public finances.

While these changes may lead to some short‑term disruptions and necessitate adjustments in estate planning, they are also likely to foster a more level playing field in the long run. For high‑net‑worth individuals, the challenge will be to navigate these changes strategically, balancing the desire to remain in the UK with the need to manage tax liabilities effectively.

Are You Prepared for the New Inheritance Tax Rules?

With the UK’s non-dom tax changes set to take effect in April 2025, one critical question remains: Have you assessed how these reforms will impact your estate, assets, and long-term financial security?

For high-net-worth individuals (HNWIs) with global investments, the shift from a domicile-based system to a residence-based tax regime is more than just a policy update—it’s a call to action. The extension of UK inheritance tax (IHT) to worldwide assets means that failing to plan ahead could result in significant tax liabilities for you and your heirs. Consider these key actions:

• Review Your Estate Plan: Are your assets structured in a way that minimizes unnecessary IHT exposure?
• Reassess Your Residency Status: If you’ve been in the UK for several years, will you soon qualify as a “long-term resident” under the new rules?
• Evaluate Your Trust Structures: Will your existing or planned trusts continue to provide tax efficiency, or do they need restructuring?

Delaying action could mean missed opportunities to protect your wealth. Now is the time to consult with a tax specialist and proactively adapt to these sweeping changes before they take full effect. Are you ready?

Conclusion

The overhaul of the UK non‑dom tax rules marks a watershed moment in estate planning and international tax law. For high‑net‑worth individuals, the transition from a domicile‑based system to a residence‑based regime means that the benefits they have enjoyed for decades are coming to an end. Worldwide assets will soon be within the scope of UK inheritance tax for long‑term residents, and the erosion of trust protections will necessitate a comprehensive re‑evaluation of estate planning strategies.

If you are among those who have traditionally benefited from non‑dom status, now is the time to act. Engage with expert advisers, review your current estate planning structures, and consider whether adjustments to your residency or asset allocation might be warranted. While the full implications of these changes will become clearer as further guidance is issued, proactive planning will be key to mitigating potential tax liabilities and ensuring that your legacy is protected.

Ultimately, these reforms reflect the government’s commitment to a fairer tax system—one in which everyone who calls the UK home pays their fair share. Although the transition may be challenging, careful planning and strategic advice can help you navigate this new landscape and secure your financial future.

Frequently Asked Question

A Thought-Provoking Question

Are you proactively restructuring your wealth and estate plan to minimize the impact of the UK’s new inheritance tax rules, or are you risking unnecessary tax liabilities for yourself and your heirs?