The UK government is reportedly reconsidering aspects of the newly implemented non-UK domiciled (non-dom) tax reforms: extending UK Inheritance Tax (IHT) to the worldwide assets of non-dom individuals.
This comes just weeks after these reforms, including the abolition of the remittance basis, came into force in April 2025. The ongoing uncertainty surrounding the future of non-dom taxation is already prompting many internationally mobile, high-net-worth individuals and families to reconsider their UK residency.
Here is what is happening - and the practical steps that non-doms and their advisers should be taking now:
Domicile vs residence: Historically, a critical distinction
Two commonly misunderstood concepts in UK tax law are residence and domicile:
- Residence is assessed annually under the Statutory Residence Test (SRT) and depends on days spent in the UK and other ties.
- Domicile is a longer-term legal status based on where you consider your permanent home, regardless of where you currently reside.
As a result, it is possible to be UK resident while remaining non-domiciled. For IHT purposes it was historically the case that:
- If you were UK domiciled or deemed domiciled, IHT would apply to your worldwide assets.
- If you were a non-dom, IHT would only apply to your UK assets.
- If you were a non-dom you could create a non-UK trust with non-UK assets and shelter those assets from IHT indefinitely (known as an 'Excluded Property Trust').
The remittance basis
In addition to the IHT advantages of being a non-dom, historically you could also elect to claim the remittance basis of taxation. The remittance basis allowed non-doms to only be taxed on their foreign income and gains which were remitted to the UK on the basis that the non-dom individual paid an annual tax charge.
What has changed in April 2025 – and what might change again
As of 6 April 2025, the UK government has replaced the remittance basis regime with a new residence-based approach, effectively ending the long-standing tax advantages available to non-doms who are resident in the UK but not deemed domiciled here for tax purposes.
The changes include:
- The remittance basis is no longer available to UK residents.
- Income and capital gains of UK residents are now taxed on an arising basis, regardless of domicile.
- Individuals who have been UK tax resident for 10 years will become subject to UK IHT on their worldwide estate, which is a significant departure from the previous 15-year deemed domicile rule.
- Any trust that has a long-term UK resident settlor, which would include Excluded Property Trusts, will be exposed to IHT.
The IHT extensions, in particular, have drawn criticism from tax advisers, private client professionals, and economic commentators. Chancellor Rachel Reeves is now reportedly considering a U-turn on this measure.
Possible revisions include:
- Transitional reliefs to soften the impact on long-standing non-doms.
- A longer lead-in period for the IHT element specifically.
- Potential carve-outs for trusts settled before a certain date.
The fact that this part of the reforms is under reconsideration reflects both its economic significance and its potential impact on the UK's attractiveness as a place to live and invest.
While no official changes have been confirmed, the ongoing uncertainty itself presents a significant risk - prompting many families and individuals to revisit their long-term financial planning.
Practical steps to take now
In many cases, early and proactive planning can protect wealth and reduce tax exposure, even amidst uncertainty. We recommend that affected individuals and families:
- Review domicile and residence status: Consider whether maintaining UK residence remains appropriate, or whether restructuring international ties is needed.
- Assess overseas trusts and holding structures: Determine whether existing trusts still qualify for excluded property status and whether restructuring is advisable.
- Update wills and estate plans: Ensure your succession documents reflect the new rules and protect global assets appropriately.
- Plan succession strategically: Explore gifting, restructuring, or lending mechanisms in anticipation of expanded IHT liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
