Residence

A guide to residence post 6 April 2025

Tax residence is a vital concept for the UK tax system and has become even more significant following the non-domicile (“non-dom”) reforms on 6 April 2025 which largely abandoned the concept of domicile for UK tax purposes. But what does tax residence mean, and why does it matter?

What is the importance of residence in UK taxation?

In very simple terms, a UK resident individual is subject to UK income tax and capital gains tax on worldwide income and gains.

A non-UK resident individual is broadly subject to UK tax on UK source income albeit there are some excepted sources of investment income e.g. UK source dividends. A non-UK resident individual is also subject to UK tax on capital gains realised on the disposal of direct and indirect interests in UK land (albeit with some re-basing permitted).

Prior to the changes introduced on 6 April 2025, UK resident but non-UK domiciled individuals had been able to claim the remittance basis of taxation so as not to be taxed on foreign source income and gains until and unless they are remitted (i.e. brought into) to the UK. Whilst being very beneficial in certain circumstances, this tax regime had become increasingly complex due to legislative changes and had acquired a political dimension. As a result, the remittance basis regime was abolished with effect from 6 April 2025.

In its replacement, a new regime (termed the four-year FIG regime) provides relief on foreign income and gains for certain individuals (those who are “new arrivers” to the UK). In addition, transitional provisions were introduced for former remittance basis users, including the Temporary Repatriation Facility.

The UK’s inheritance tax regime also underwent significant reform from 6 April 2025, moving from a domicile-based system to a residence-based system. Broadly, individuals who are classified as long-term UK residents are within the scope of UK inheritance tax on their worldwide assets. Those who are not long-term UK residents are generally subject to UK inheritance tax only on UK situated assets, such as UK land and property.

What are the rules for UK tax residence?

Until 2013, the UK’s residence tests were based on some fairly archaic principles and case law. That all changed in 2013 when a statutory residence test was introduced. This sets out a series of tests which enable a taxpayer to work out whether they are automatically UK resident, automatically non-UK resident or in the middle ground where the number of links the taxpayer has with the UK (these links are set out in statute) will determine how many days you must spend in the UK to become UK resident. One of the tests which would make an individual automatically resident in the year is where that individual spends more than 6 months of the year in the UK.

Technically, an individual is tax resident in the UK (or not) for a complete UK tax year. There are, however, a limited number of circumstances where an individual would only be treated as resident for part of the tax year. This is commonly called split year residence but there are rigid conditions to be met.

Whilst the rules are complex and there are some grey areas, the statutory residence test has done a reasonable job of enabling people to work out their residence status based on some objective tests. It is, however, worthwhile remembering that whole books have been written on the subject which emphasises the complexity of the rules.

It is also worth pointing out that every country will have its own rules as regards tax residence and related concepts. As a result, it is possible to be simultaneously tax resident in more than one country. Where that occurs, a double tax treaty between the two relevant countries may assist. Such an agreement will normally have a tie breaker test to determine where the individual will be treated as tax resident for the purposes of the treaty, which then carves up taxing rights between the two territories by reference to each source of income or gains.

The four-year Foreign Income and Gains (FIG) regime

In place of the remittance basis, the new rules introduce a regime that provides 100% relief from UK tax on most categories of foreign income and gains for certain individuals who are newly arriving in the UK. Broadly, this applies to individuals who have not been UK resident in any of the 10 tax years preceding their arrival and is available for their first four years of UK tax residence.

In effect, the FIG regime offers qualifying new arrivers a four-year period during which certain foreign income and gains can be received free from UK tax.

However, relief under the FIG regime is not automatic and must be claimed. Individuals are also required to calculate and disclose on their tax returns the amounts of foreign income and gains for which relief is sought. Although qualifying foreign income and gains arising on or after 6 April 2025 can be brought to the UK without giving rise to a UK tax charge, careful planning and appropriate advice remain essential to ensure compliance with the rules and to avoid unintended tax consequences.

The Temporary Repatriation Facility (TRF)

The TRF provides a time-limited opportunity for individuals who previously claimed the remittance basis to bring unremitted foreign income and gains into the UK at preferential rates of tax.

The facility is available during the 2025/26, 2026/27 and 2027/28 tax years. The applicable tax rate is 12% for amounts designated under the TRF in 2025/26 and 2026/27, increasing to 15% in 2027/28.

The TRF can also apply to accumulated income and stockpiled gains within offshore trust structures, potentially allowing beneficiaries to receive distributions from such structures at reduced tax rates, as well as providing an opportunity to simplify or unwind existing offshore arrangements in a tax-efficient manner.

In summary, for individuals intending to remain in the UK over the long term, the TRF represents a valuable planning opportunity. In particular, it enables former remittance basis users to access offshore funds that they may previously have been reluctant to bring to the UK due to the prospect of significant UK tax charges.

Capital gains tax rebasing

Another transitional measure is the rebasing relief available to certain former remittance basis users. Subject to meeting the relevant conditions, individuals may elect to rebase foreign assets held personally on 5 April 2017 to their market value at that date when calculating capital gains tax on a subsequent disposal.

However, assets held within trust structures do not qualify for rebasing. As a result, gains realised on trust-held assets will continue to be calculated under the normal rules, and trustees and beneficiaries should review the position carefully when considering the impact of the post-6 April 2025 reforms.

The residence-based inheritance tax system

The UK’s inheritance tax regime moved to a residence-based system from 6 April 2025. Under the new rules, individuals who have been UK resident for at least 10 years (and therefore are “long-term” resident) are subject to UK IHT on their worldwide assets.

Individuals who leave the UK will continue to remain within the scope of UK IHT for a period of between three and ten years after departure, depending on the length of their previous UK residence.

The new regime is advantageous for individuals who have left, or are planning to leave, the UK, as non-UK assets may fall outside the scope of UK IHT once they are no longer within the relevant tail period. However, for non-UK domiciled individuals who are, or become, long-term resident, the changes can have a significant impact on their IHT exposure, bringing worldwide assets into charge.

The reforms have also affected many existing offshore trust structures, requiring a detailed review on a case by case basis.

In particular, what are termed “protected” trusts established by non-UK domiciled individuals have lost their income tax and capital gains tax protections, with the result that they are now broadly treated as transparent for these tax purposes.

The changes have also altered the IHT treatment of trust structures. What are termed “excluded property” trusts (whether UK or non-UK resident) established by non-UK domiciled individuals no longer benefit from their previous IHT protections where the settlor has become long-term resident. Conversely, relevant property trusts established by UK-domiciled individuals may now benefit from more favourable IHT treatment where the settlor is not long-term resident.

The relevance of domicile post 6 April 2025

Although the UK has moved to a residence-based tax regime from 6 April 2025, domicile will continue to remain relevant for tax purposes, particularly in relation to the transitional provisions. It may also continue to be a key issue in HMRC enquiries concerning historic tax returns, and therefore has not become entirely obsolete as a result of the recent changes.

Domicile will also continue to be relevant in the context of the UK’s inheritance tax double taxation treaties where, unlike the new domestic IHT regime which is based on residence, a number of the UK’s existing IHT treaties allocate taxing rights by reference to domicile or concepts closely aligned with domicile. As these treaties have currently remained unchanged following the introduction of the residence-based regime, determining an individual’s domicile status may still be necessary when considering treaty relief from double taxation on cross-border estates.

More broadly, the old legal concept of domicile will also remain and will continue to have relevance for some non-tax purposes e.g. family law and claims against the estate of a UK domiciled individual under the Inheritance (Provision for Family and Dependants) Act 1975.