Understanding the UK’s New Tax Regime: Residence vs Domicile
On the 6th of April 2025, the UK changed the way it taxes people who live here. The old system, which relied on a concept called domicile, no longer applies. Instead, the UK has rolled out a residence-based system of taxation.
Key Terms You Need to Know
· Domicile: This is a legal concept that refers to the country you consider your permanent home, even if you live somewhere else for a long time. For example, someone might live and work in the UK but still be legally considered “domiciled” in their birth country if they intend to eventually return there.
· Remittance: This means bringing money or income earned or generated abroad into the UK. Under the old rules, certain people only paid tax on overseas income if they remitted (brought) that money into the UK.
What does that mean?
UK residents are subject to tax on their worldwide income, capital gains, and estates (beyond a nil rate band threshold, currently frozen at £325,000). Treaties are in place to ensure that individuals do not suffer double taxation from both the UK and other jurisdictions.
Until now, UK tax law treated people differently depending on whether they were domiciled in the UK or not.
If you were a UK resident but had your domicile outside the UK, you could choose to be taxed on the remittance basis.
· This meant that any income or capital gains you earned abroad were only taxed if you brought that money into the UK.
· But, if you chose this system, you had to give up your personal tax allowances (the amount of income you can earn before paying tax).
As of the 6th of April 2025, this option disappeared. Instead:
· All UK residents are now taxed on their worldwide income and assets — meaning both UK and overseas earnings — whether they bring the money into the UK or not.
· Tax treaties remain in place.
But I’m new here!
If you are new to the UK, there is some relief available.
· You can choose the Foreign Income and Gains (FIG) Regime during your first 4 years of UK residency.
· This means you will not be taxed on foreign income or gains during that time, even if you bring the money into the UK.
· However, this option is only open to people who have not been resident in the UK during the last 10 tax years (as determined by the Statutory Residence Test).
· Choosing this system means giving up personal tax allowances.
What about those of us who’ve been here a while?
If you already live in the UK and have been using the old remittance basis, the government has introduced some transition measures:
1. Rebasing of Assets: You can reset the base value of your overseas assets to what they were worth on the 5th of April 2017, which could reduce tax liability by potentially reducing the taxable gain that might have accrued over a longer period.
2. Temporary Repatriation Facility (TRF): For a limited time, you can bring past foreign income and gains into the UK at a lower tax rate:
· 12% in the tax years 2025–26 and 2026–27
· 15% in the tax year 2027–28
What about when I leave?
Under the new regime, if you have been living in the UK for at least 10 of the last 20 years, your estate will remain in scope for UK Inheritance Tax (IHT) for a period of 3-10 years after leaving the UK.
Length of residency in the UK Amount of time worldwide assets remain in scope for UK IHT
10-13 years 3 tax years after departure
>13 years 3 tax years + 1 year for each additional year of residence, up to a total maximum of 10 years
(e.g. if you lived in the UK for 18 years, your worldwide estate will remain subject to IHT for 8 years after you leave)
Summary of the New Regime
· Everyone who is UK resident will now be taxed on worldwide income and assets, not just those brought into the UK.
· Treaties are in place to prevent individuals from being taxed twice.
· Long-term residents will see their worldwide estate subject to UK Inheritance Tax for a number of years after leaving the country.
· New arrivals can use the FIG Regime for 4 years, shielding overseas income from UK tax.