If you’re a British expat living abroad, or if you reside in the UK but were born outside the country, you may qualify as a “non-dom”.
As a non-dom, you typically only pay UK tax on the income you earn within the UK or on the assets you hold there. Historically, this has meant you can potentially reduce your tax burden by claiming domicile in another country with lower tax rates.
For instance, many British expats who live and own property overseas, benefit from the favourable local Inheritance Tax (IHT) rates that may be lower than they are in the UK. However, the rules around non-doms are set to change from 6 April 2025.
If you’re a British expat or a foreign national with assets in the UK, these rule changes could affect you, and Ambient Wealth can help you navigate the complexities surrounding cross-border financial planning and the legal mitigation of IHT.
Read on to find out what the reforms entail and what they could mean for you.
The non-dom tax regime is set to be phased out
In March 2024, former chancellor Jeremy Hunt announced plans to phase out the UK’s non-dom tax regime. The current chancellor, Rachel Reeves, then confirmed the Labour Party’s commitment to Hunt’s reforms in the Autumn Budget.
Previously, non-doms could shield their foreign income and gains from UK tax unless they transferred those funds into the UK.
Under the new rules, all UK residents will be taxed on their worldwide income and gains, regardless of their domicile status. However, the criteria for determining residency have been revised.
The new rules come into effect in April 2025. They state that:
- Brits and previous UK residents living abroad who claim domicile in another country will have to be a foreign resident for a minimum of 10 years before their non-UK-sited assets are outside the scope of UK tax. All UK-sited assets will remain within the scope of UK IHT.
- New arrivals to the UK will be exempt from tax on foreign earnings for their first four years. After this period, they will be taxed like any other UK resident.
- Existing non-doms will have a three-year transition period during which they will be encouraged to bring their wealth into the UK.
If you’re unsure how the new rules could affect you, Ambient Wealth can help you assess your situation, navigate the changes, and develop a tax-efficient strategy to protect your wealth.
The new non-dom rules could affect pensions and Inheritance Tax planning for British expats
In addition to the overhaul of the non-dom tax regime, the UK Autumn Budget saw the introduction of major reforms that could reshape how British expats manage their pensions and IHT liabilities.
For instance, most pensions will be brought into the scope of IHT from 2027. So, if you have a UK pension but live abroad, you might want to consider reviewing this to help mitigate your future IHT liability.
Here’s what you need to know about how British expats and previous UK residents could be affected by the reforms and why understanding the changes is critical.
A shift from domicile to long-term residency
Historically, the concept of domicile has been central to determining UK IHT obligations for British citizens. Many expats found that, despite decades abroad, they were still deemed UK-domiciled, exposing their global estates to IHT.
The new rules replace the concept of domicile with long-term residence (LTR). If you’ve lived outside the UK for at least 10 of the last 20 years you will now be classified as a non-UK LTR.
This means that if you are a non-UK LTR, assets you hold outside the UK will not be liable for UK IHT, while assets you hold in the UK – such as savings, investments, pensions, and property (including land) – will be.
So, if you’re an expat and intend to remain out of the UK for extended periods of time, you may want to consider moving your UK assets outside of the country.
Tax incentives for expats returning to the UK
The budget also introduced two noteworthy provisions for British expats considering a return to the UK:
- Four years of tax-free foreign income and gains: The foreign income and gains (FIG) rules allow non-UK LTRs returning to the UK to enjoy tax-free treatment on income and gains from overseas assets for up to four years.
- 10-year IHT exemption: Returning expats can benefit from a 10-year IHT exemption on non-UK assets, provided they are still classified as non-UK LTRs at the date of death. After this 10-year period, full UK LTR status will apply and all worldwide assets will be liable for IHT.
Whether you’re an expat or considering moving abroad, restructuring your assets and revisiting your long-term strategies can help minimise IHT and optimise your overall tax efficiency.
A financial planner well versed in UK cross-border planning can help ensure you remain tax-efficient under the new rules
If you’re an overseas resident or you’re planning on becoming one, Ambient Wealth can work with you to develop a plan that keeps your worldwide assets and income outside the scope of the UK tax system, while minimising taxation in your country of residency.
We can help you determine the best course of action based on your unique circumstances, ensuring your financial plan remains tax-efficient, compliant, and aligned with your long-term goals.
To find out more about how we can help and to speak to a financial planner, get in touch.
Email contact@ambient-wm.com or call us on +34 658 077 450.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.