The End of UK Non-Dom Status: Understanding the New FIG Regime

Understanding the UK’s New Foreign Income and Gains Regime

April 2025 marked the end of an era for UK taxation. The remittance basis of taxation, which had allowed non-domiciled individuals to shield foreign income and gains from UK tax for decades, was abolished and replaced with the new Foreign Income and Gains (FIG) regime. For anyone considering leaving the UK - or recently arrived - these changes fundamentally reshape the tax planning landscape.

What Changed on 6 April 2025?

The traditional remittance basis allowed UK residents who were non-domiciled (or deemed domiciled) to avoid UK tax on foreign income and gains, provided those funds were not brought into the UK. This system, with its complex rules around clean capital, mixed funds, and remittance tracing, has been replaced entirely.

From 6 April 2025 onwards, most UK residents are taxed on the arising basis - meaning worldwide income and gains are taxable as they arise, regardless of whether funds are remitted to the UK.

The Four-Year FIG Regime

The new system offers a significant, if time-limited, benefit for new arrivals: the four-year Foreign Income and Gains regime.

If you arrive in the UK having been non-resident for the preceding 10 tax years, you automatically qualify for the FIG regime. During your first four years of UK residence:

• Foreign income is exempt - You pay no UK tax on income arising outside the UK

• Foreign gains are exempt - Capital gains on non-UK assets are similarly protected

• No claim required - Unlike the old remittance basis, this happens automatically

• No loss of allowances - You retain your personal allowance and annual exempt amount

This is genuinely more generous than the old remittance basis for qualifying individuals. The critical difference is the strict four year limit - there's no option to extend this relief, regardless of how large the remittance basis charge might have been under the old system.

What Happens After Four Years?

Once the four-year window closes, you're fully within the UK tax net on the arising basis. All worldwide income and gains become taxable as they arise. For many high-net-worth individuals who previously used the remittance basis for extended periods, this represents a fundamental shift in their tax exposure.

Offshore Trusts: The Protection Is Gone

Perhaps the most significant change for established non-doms concerns offshore trusts. The protected settlement regime, which allowed non-doms to accumulate income and gains within offshore trusts without UK tax until distributions were made, ended on 6 April 2025.

Key changes include:

• No Grandfathering - There is no income tax or capital gains tax grandfathering for existing structures. Gains and income that would previously have rolled up tax-free are now attributable to UK resident settlors.

• Attribution rules apply - UK resident settlors who do not qualify for the FIG regime are now taxed on gains arising within trusts they have settled if they, their spouse, or their children/grandchildren can benefit.

• IHT changes - Inheritance tax now focuses on the settlor's long-term residence rather than domicile, with assets held in offshore trusts potentially brought within the UK IHT net.

The Temporary Repatriation Facility

Recognising that the changes could trap historic foreign income and gains, the government introduced the Temporary Repatriation Facility (TRF). This allows individuals to bring historic foreign income and gains into the UK at reduced rates:

• 12% rate - For the 2025/26 and 2026/27 tax years

• 15% rate - For the final year, 2027/28

The TRF provides a limited window to repatriate funds accumulated under the old remittance basis at rates significantly below standard income tax rates. For those with substantial mixed funds overseas, this may offer a valuable planning opportunity.

Who Should Consider Leaving the UK?

The abolition of the remittance basis has prompted many non-doms to reconsider their UK residence. Those most affected include:

• Trust settlors - Those with offshore trust structures that previously benefited from protected status

• Business owners - Entrepreneurs with significant overseas business interests generating foreign income

• Long-term non-doms - Individuals who have been UK resident for extended periods, relying on the remittance basis to protect substantial foreign income and gains

For these individuals, relocating to a jurisdiction with a more favourable tax regime - such as the UAE, with its zero personal income tax -may offer substantial tax savings.

Planning Considerations

If you're contemplating a move, several factors require careful attention:

• Statutory Residence Test - Achieving non-residence under the SRT requires meeting specific criteria. Simply spending time abroad is not sufficient - the test is complex and departure must be carefully planned.
• Timing - The tax year in which you leave affects your exposure. Coordinating your departure with asset disposals, trust distributions, and income recognition can significantly impact your overall tax position.
• The TRF opportunity - If you have historic foreign income and gains, using the TRF before leaving may be advantageous - particularly if you might return to the UK in future.
• Ongoing UK connections - Non-residence doesn't mean complete freedom from UK tax. UK source income, UK property, and certain UK assets may still be taxable.

Looking Ahead

The UK tax system continues to evolve toward greater transparency and higher taxation of passive income. For internationally mobile individuals, this means ongoing vigilance and planning is essential.

Whether you're a new arrival benefiting from the FIG regime, a long-term resident considering departure, or simply trying to understand your options, professional advice is crucial. The interaction between residence, the FIG regime, trust taxation, and potential exit charges creates complexity that requires careful navigation.

Mosaic Chambers Group advises UK nationals on the tax implications of relocating to and from the UAE. Speak to our team about how business and personal tax obligations intersect during a relocation.