Non-dom no more

Non-doms who had been resident in the UK for anywhere between four and 15 years prior to 6 April 2025 have had to rearrange their non-UK financial affairs, with the loss of the remittance basis looming, and a short window of time to act. Preparation for UK taxation on worldwide income and realised gains has been essential.

This has given rise to numerous practical challenges. How is investment portfolio X, retirement arrangement Y and offshore wrapper Z treated for UK tax purposes? How is an individual’s interest in offshore structure A treated? Do the transfer of assets abroad provisions apply, and if so, how? Is a motive defence claim relevant or appropriate? How might restructuring affect such a claim? What action, if any, should be taken to reorganise offshore structure A or repurpose investment portfolio X?

As the 2025/26 tax return cycle begins in earnest, UK tax accountants are now preparing to disclose answers to these questions.

From 6 April 2025, all UK-resident individuals will be subject to UK tax on their worldwide income and realised gains. However, UK-resident individuals in their first four years of residence may utilise the new foreign income and gains (FIG) regime, provided they have not been UK resident in the ten years prior to arrival. Individuals who make an annual claim to use this regime will not pay UK tax on FIG, with no charge for doing so.

Once an individual’s eligibility for the FIG regime has been established, the process begins. Importantly, to claim the FIG regime, individuals will need to quantify the amount of income and gains for which relief is being claimed. If amounts of FIG are not quantified and included in the claim, they will be subject to UK tax.

Legislation[1] and HMRC manuals[2] confirm the requirements for a FIG regime claim. In practice, completing a UK tax return including a FIG claim is as complex as one without such a claim. Indeed, the required analysis and disclosure is similar. HMRC’s own manuals confirm that, for FIG to be relieved, it must be claimed on a per-source basis, and that ‘Declaring foreign income for relief purposes is no different to declaring foreign income that will be taxed on the arising basis’.[3]

The disclosure required is confirmed in the now published 2025/26 UK tax returns; in particular, the ‘Residence and foreign income and gains (FIG) regime etc’ and ‘Foreign’ pages. [4]

Therefore, for those coming to the UK, many of the practical challenges outlined above are repeated – but at a much earlier stage in an individual’s relationship with the UK tax system. The traditional pre-entry planning, offshore account structuring and remittance basis is gone. As is the straightforward, remittance basis tax return for up to 15 years. From year one, individuals face complexity, disclosure and a material compliance burden.

[1] Finance Act 2025, Part 2, Chapter 1

[2] HMRC, ‘RFIG42100 – FIG regime: Claims for relief – making a claim’ [URL: https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig42100]

[3] HMRC, ‘RFIG42100 – FIG regime: Claims for relief – making a claim’ [URL: https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig42100]

[4] [URL: https://www.gov.uk/government/publications/self-assessment-residence-remittance-basis-etc-sa109 and https://www.gov.uk/government/publications/self-assessment-foreign-sa106]

Further practical challenges arise for trustees of offshore trusts that have, post 5 April 2025, made a capital distribution to a UK-resident beneficiary, where that beneficiary will elect to use the temporary repatriation facility (TRF) to access a 12 per cent UK tax rate.[1]

To access the TRF in respect of such a distribution, it must be matched to pre-6 April 2025 FIGs of the trust. The usual matching rules can result in post-5 April 2025 relevant income and realised capital gains being matched to the distribution. However, modifications to the matching rules have been made for TRF purposes only. These allow (in some cases) FIG arising after 5 April 2025 to be disregarded when a beneficiary is utilising the TRF.

Importantly, these special matching rules apply only when determining amounts that can be designated for TRF purposes. The usual matching rules must still be applied to determine a trust’s UK tax pools (relevant income and stockpiled capital gains) which are to be carried forward for non-TRF purposes.

Offshore trustees will therefore need to identify where UK-resident beneficiaries are using the TRF with respect to capital distributions, before undertaking dual computations to ensure that the trust’s UK tax pools are correctly tracked moving forward.

[1] Where there is a 12% TRF rate for 2025/2026 and 2026/2027, rising to 15% in 2027/2028.

The article ‘Distributions from non-UK resident trusts made before the Budget – were they a mistake?’,[1] highlights two further key issues introduced retrospectively in the Budget on 26 November 2025. These changes may impact UK residents who have received distributions from an offshore trust with the intention of using the TRF.

Depending on the circumstances, this could cause an expected 12 per cent tax rate to double to 24 per cent. The referenced article reflects on the practical challenges faced by trustees and individuals in these situations.

[1] John Barnett TEP, Justin Briggs and Helen MacLeod, Burges Salmon, ‘Distributions from non-UK resident trusts made before the Budget – were they a mistake?’ [URL: https://www.burges-salmon.com/our-thinking/distributions-from-non-uk-resident-trusts-made-before-the-budget-were-they-a-mistake/]

From 6 April 2025, inheritance tax (IHT) has moved to a residence-based system. When an individual has been UK resident for ten of the previous 20 tax years, their worldwide estate will be subject to the IHT regime. This ostensibly simplifies matters significantly, but challenges arise, especially where trusts are concerned.

Non-UK assets of a trust will now be in the scope of the relevant property regime when the settlor is a long-term resident of the UK, giving rise to IHT exposure at each ten-year anniversary of the trust, and when capital distributions are made.

This change will require trustees to be cognisant of the settlor’s UK tax residence position each year, so they can assess any potential exposure to IHT.

Practical challenges can also arise where trust IHT charges interact with other jurisdictions, with relevant tax treaties required to be considered in a new light. An excellent example is where the settlor is a US citizen and relief under art.5(4) of the 1979 United States-United Kingdom Estate and Gift Tax Convention is considered. With the historic excluded property trust regime, reliance on art.5(4) has never been required before, and so there is limited practical experience of how one might expect HMRC to view the application of art.5(4) in practice.