The UK government has announced significant changes to the taxation system for non-UK domiciled individuals, effective from 6 April 2025. Here's a simplified breakdown of the upcoming reforms in a question-and-answer format to help you understand the implications.

1. Who Will Be Affected by These Changes?

These reforms will impact:

• Non-UK domiciled individuals with foreign income, assets, or gains.
• New arrivals in the UK with non-UK income or assets.
• Employers managing PAYE (Pay As You Earn) for employees with overseas income.
• Trustees of trusts set up by individuals who were non-UK domiciled.

2. What Is Changing in the Taxation System?

The remittance basis of taxation will be replaced with a residence-based system. Key changes include:

• 4-Year Foreign Income and Gains Regime: New arrivals who haven’t been UK tax residents in the previous 10 consecutive years will receive 100% relief on foreign income and gains during their first 4 years in the UK.
• Removal of preferential tax treatment for overseas trusts and non-domiciled individuals.
• Transition to a residence-based Inheritance Tax system, bringing non-UK assets into scope after long-term UK residency.

3. What Is the Temporary Repatriation Facility?

This facility allows individuals who previously used the remittance basis to remit foreign income and gains at a reduced tax rate:

• Tax Years 2025 to 2026: 12% tax rate.
• Final Year: 15% tax rate.

This facility will be available for a limited period of three tax years.

4. What Are the Changes in Inheritance Tax (IHT)?

The domicile-based IHT system will transition to a residence-based one:

• Individuals will be considered long-term residents and subject to IHT on non-UK assets if they’ve been UK residents for at least 10 out of the last 20 tax years.
• Non-UK assets placed in trusts by these individuals will also be taxable.

5. How Does This Impact Overseas Workday Relief?

Overseas Workday Relief will:

• Align with the new 4-year foreign income and gains regime.
• Be capped at the lower of £300,000 or 30% of total employment income.

6. What Happens to Foreign Income Earned Before April 2025?

Foreign income and gains earned before 6 April 2025 will still be taxed under the remittance basis if brought to the UK after this date. These earnings may also qualify for the Temporary Repatriation Facility, which falls under the broader scope of NRI taxation services provided to ensure compliance with applicable laws.

7. How Will This Impact Non-UK Domiciled NRIs in the UK?

• NRIs who qualify for the 4-year foreign income and gains regime will enjoy significant tax relief during their initial years of UK residency.
• Those who have used the remittance basis in the past must plan for the new tax implications on their global income and assets.

8. What Are the Key Benefits for NRIs?

• Simplified tax processes.
• Opportunity to utilize the Temporary Repatriation Facility at reduced tax rates.
• Clear guidelines on tax treatment for non-UK assets and trusts.

9. What Should NRIs Do to Prepare for These Changes?

• Evaluate current and future tax liabilities under the new system.
• Seek professional advice to optimize tax planning.
• Understand the implications of the Temporary Repatriation Facility and Inheritance Tax changes.

Why This Matters to NRIs in the UK

These reforms are a game-changer for non-UK domiciled individuals, especially NRIs navigating complex global tax scenarios. By aligning the tax regime with residency, the UK aims to create a fairer, more transparent system that balances attracting talent with ensuring equitable taxation.

Need Expert Guidance?
At Dinesh Aarjav & Associates, we specialize in providing tailored tax solutions for NRIs in the UK. From understanding the new rules to optimizing your tax strategy, we’re here to help.

Visit our website at dineshaarjav.com for more insights, or contact us directly for personalized advice.