Residence and Domicile 2025

The Change from Domicile to Long-Term Residence

The End of the Remittance Basis

With effect from 6 April 2025, section 40 FA 2025 has abolished the remittance basis.

• Still applies to foreign income and gains arising before 6 April 2025 remitted to the UK by former remittance basis users.
• Detailed rules set out in Schedule 9.
• Replaced by new regime applicable to the foreign income or gains (“FIGs”) arising after 6 April 2025 of “qualifying new residents”.
• New rules can thus apply to UK domiciled individuals who had not previously used the remittance basis.

The new regime applicable to the foreign income and gains of qualifying new residents:

• Section 37 FA 2025 introduces sections 845A to 845J ITTOIA.
• Section 845B defines a “qualifying new resident” as:

• • An individual who is UK resident in a tax year and was non-resident in each of the previous 10 tax years;
  • An individual who is UK resident in a tax year which is one of the next three tax years after a “qualifying tax year”.

A “qualifying tax year” is either a year within, above, or 2022/23 to 2024/25 inclusive.

• • These individuals can make claims enabling them to receive FIGs tax-free for the first four tax years after arrival, after which they are taxed on the arising basis.
  • Split year residence and treaty non-residence count towards the four-year time limit e.g. arrive in January 2027, exemption ends on 6 April 2031.
  • Leave temporarily during the four years: regime can apply in remaining qualifying tax years on return.
    Example: leave in years 2 and 3, back in year 4. Can claim in year 4 but not year 5 as not following 10 years of non-residence.

Relevant Claims and Elections

Under section 845A, a qualifying new resident can make a foreign income claim for a qualifying year.

Gives relief for “qualifying foreign income” identified as such in the claim by deducting the amount of the relief from net income.

• Qualifying foreign income defined in section 845H with 23 different categories of income, with “disqualified income” defined in section 845I.
• Must be made in a return within 12 months beginning with 31 January after the end of the tax year.
  Example: claim for 2025/2026 must be made on or before 31 January 2028.
• It cannot be the subject of a consequential claim if taxpayer acted carelessly or deliberately.

New Overseas Workday Relief

Section 38 FA 2025 inserts Chapter 5C, Part 2, ITEPA.

Previously, a remittance basis user was only taxable on employment income attributable to non-UK duties, including income accruing on the UK part of a split year, if the income was remitted to the UK.

• Applied for the first three years of UK residence for arrivers under section 26 ITEPA
• Replaced by new regime for qualifying new residents as defined under section 845B ITTOIA
• The individual needs to have been non-UK resident for 10 years before arrival as opposed to three under the old regime
• Extended to four years from three under the old regime
• Applies regardless of whether the income is brought to the UK or left overseas and if remitted to the UK, there is no further tax charge
• Transitional arrangements apply to employees who claimed relief before 6 April 2025 but are ineligible for FIG regime. Can claim relief for first three years of tax residence.

Foreign Employment Election

A qualifying new resident can make a foreign employment election for a qualifying year which entitles the individual to make a foreign employment relief claim (sections 41M and 41P).

• Relief equal to net taxable employment income which reflects “qualifying foreign employment income” (defined in section 41Q).
• Applies to earnings, amounts treated as earnings, amounts which count as employment income under Part 7A ITEPA (section 41V) and Employment-related securities under Part 7 ITEPA (section 41W).
• The amounts relating to UK and non-UK duties are determined on a just and reasonable basis, usually by reference to the number of workdays in the UK and overseas.
• Relief limited to the lesser of 30% of the relevant qualifying employment income, and £300,000 (section 41R) in line with expatriate regimes in other countries such as France and the Netherlands.
• Limit does not apply to employees who were claiming the relief before 6 April 2025.
• Similar procedural requirements as a foreign income claim.
• As in relation to the old regime, does not apply to NICs.

Foreign Gain Claim

Section 39 FA 2025 inserts Schedule D1 TCGA.

• A qualifying new resident can make a foreign gain claim.
• Gives relief for each “qualifying foreign gain” (defined in para 6, schedule 1) accruing to the individual by deducting an amount equal to the sum of those gains from the total amount of chargeable gains.
• Qualifying foreign gain defined in para 6, schedule 1.

Applies to: gains accruing on the disposal of assets situated outside the UK, gains attributed to participators in non-UK companies, and qualifying asset holding company gains.

• Normal CGT situs rules apply except an asset that derives at least 75% of its value from UK land, where the person has a substantial interest in that land, is treated as a UK-situated asset.

• Same procedural requirements for making the claim as a foreign income claim: can make one or both.

Effect of Foreign Income Claim, Foreign Employment Election, and Foreign Gain Claim

• If FIG amounts are not quantified and included in a return, individuals will remain chargeable on them and subject to tax at their usual rates.
• Amounts which are the subject of the claim can be remitted in the same or later tax year with no further UK tax charge.
• If no claim made in, say, year 2, amounts cannot then be claimed in years 3 and 4, even if a claim is made for those years.
• Cannot claim income tax personal allowance (section 845D) or CGT allowance for that tax year.
• Cannot claim any foreign income or capital losses for that year.
• No relief for losses of a business whose profits would be qualifying foreign income in the year the claim/election is made or any other tax year (section 845C).
• No relief for a dwelling-related loan (section 845D).
• Pension scheme relief reduced (section 845F).
• Regime does not apply to FIGs which arose in a year in which the individual used the remittance basis, even if amounts remitted during qualifying tax years – but TRF may be available.

• The temporary repatriation facility
• New definition of long-term UK residence for IHT.

The Temporary Repatriation Facility for Individuals

Schedule 10 Finance Act 2025

• Available at a flat rate for three years as long as the individual is UK resident: 2025/26 and 2026/27 at 12%  ; 2027/28 at 15%, with no further charge to UK tax
• Applies to specific amounts of “qualifying overseas capital” i.e. Amounts derived from pre-6 April 2025 FIGs for which the remittance basis was claimed, also mounts of uncertain origin or even clean capital
• Can apply to cash and amounts used to purchase non-liquid assets
• Specific amounts designated by an election made in the taxpayer’s return for the year in question (same time limits as for FIG claims)
• Designated amounts on which the TRF charge has been paid need not be remitted in a TRF year
• Foreign tax cannot be set off against the TRF charge: designated amounts are treated as net of tax
• TRF charge paid out of undesignated FIG constitutes a taxable remittance, even if paid direct to HMRC: Contrast payment of the remittance basis charge.
• Designated amounts rise to the top of mixed fund ordering and will be treated as remitted to the UK in priority to any other amounts; nominated income ordering rules also modified.

IHT Changes (1)

Sections 44 to 46 FA 2025

• Section 44 introduces sections 6A to 6C IHTA
• Section 6A provides an individual is a long-term UK resident if UK resident for at least 10 of the previous 20 years before the IHT chargeable event (including death).
• Can remain a long-term UK resident for up to 10 years after leaving the UK
• If an individual has been UK resident for between 10 and 19 years out of 20 years, becomes non-resident and does not return to the UK before the chargeable event, the length of time they remain a long-term resident is reduced
• Thus, if resident between 10 and 13 years, they remain in scope for 3 tax years which increases by one tax year for each additional year of residence
• An individual will not be treated as long-term resident in the year following 10 consecutive years of non-residence if they then return to the UK (same as the FIG regime).

IHT Changes (2)

• Section 6B: modifies rule for individuals under 20 years of age so that they are long-term UK resident if resident for at least 50% of the tax years since they were born
• Section 6C: Introduces rules for companies
• Residence determined as for income tax and CGT
• position of domiciled and previously deemed domiciled individuals? – see next section.

Key Issues Going Forward

Know that liability to UK tax is now determined by residence, individuals need to keep careful records of days spent in the UK and the ties in the statutory residence test.

• Check whether client is a qualifying new resident in any year from 2022/2023 onwards using the SRT
• Check relevant time limits for making claims for FIGs
• Will need to carefully check foreign income and gains to avoid the necessity of making a consequential claim and to avoid the question of whether the ability to do so is lost because of carelessness
• If remittance basis user as of 5 April 2025 can rebase a personally held foreign asset for CGT purposes to its market value as at 5 April 2017 for disposals on or after 6 April 2025.

Winners and Losers

Winners:

• New arrivers benefitting from the new regime for foreign income and gains for the first four tax years at least
• Long term residents (who may already be actual or deemed domiciled) with unremitted foreign income and gains who can use the TRF

Losers:

• Remittance basis users who have been UK resident for more than four years
• Settlors who are now UK resident but not qualifying new resident
• Those affected by the IHT changes.

Changes to Trusts: “Excluded Property” IHT Test

• IHT “excluded property” test for settled property changed w/e 6 April 2025: Old test under s.48(3) and (3A) repealed from 6 April 2025 “… settled property situated outside UK [and AUTs and OEIC interests – but not Sch A1 prop] is excluded property unless S was UK dom [actual or deemed] at time the property became comprised in it”.

• New Test – w/e 6 April 2025 under new s.48ZA IHTA
  • S alive after 5 April 2025 – Non-UK prop is excluded property “at any time when S is not a long-term UK res” – 48ZA(2); except during a time where the QIIP-holder is a long-term UK res – 48ZA(5)
  • S dies after 5 April 2025 – Non-UK prop is excluded property if S not a long-term UK res on death – 48ZA(3); except during a time where QIIP-holder is a long-term UK res – 48ZA(5)
  • S dies before 6 April 2025 – the old s.48(3) test applies – s.48ZA(4).

Dead Settlor vs Living Settlor Trusts – IHT

Dead Settlor Trust

S was non-dom when the property was settled

• S died before 6 April 2025 – Non-UK prop always excluded property unless on QIIP for long-term UK res
• S dies after 5 April 2025 without being a long-term UK res = non-UK prop always excluded property unless on QIIP for long-term UK res – 48ZA(5).

Living Settlor Trust

If S was non-dom when property was settled, but is or will shortly be UK res for 10+ years out of last 20, So as to become a long-term.

UK res = loss (or risk of loss) of excluded property status.

Loss of Excluded Property Status – Potential IHT Problems

Potential IHT Charges

• On termination of QIIP: s.52 IHTA (lifetime termination); s.54 IHTA (on death) – (20% to 40% IHT rate).
• On relevant property: s.64 IHTA – TYA charges and s.65 IHTA ‘exit’ charges – (up to 6% rate).
• ‘Exit’ charge
• If relevant property becomes ‘excluded property’ again and possibly again.

Potential IHT charge on S under GROB

• (s.102 FA 1986) where S is a beneficiary of (or in fact benefits from) the settlement (up to 40% IHT rate).

What Can S Do to Be Saved, Assuming Non-UK-Dom?

Sch 13 para 46 FA 25 deems S not to be a long-term UK res in a given tax year where:

• S not actually UK-dom on 30 Oct 2024, and
• S non-UK-resident for all years from 2025/26 to the end of the given tax year, and
• S either: Resident for none of the 3 tax years immediately preceding the given tax year, or Resident for fewer than 15 of the 20 tax years immediately preceding the given tax year.

Check Reliefs

(i) Relief for QIIP Terminations

New s.53(4A) and s.54(2C) IHTA:

IHT not charged under s.52 on termination of a QIIP, or under s.54 on death of QIIP-holder, where:

• Property settled by non-dom pre-30 Oct 2024
• QIIP-held since before 30 Oct 2024
• The property was excluded property under (old) s.48(3) or (3A) IHTA immediately before 30 Oct 2024, and
• Is situate offshore or AUT or OEIC (and not Sch A1 property) immediately before the event.

NB – No relief where S had “formerly domiciled resident” status in 2024/25.

(ii) Partial Relief for Relevant Property

New s.64(1BZA) IHTA:

Prevents rule which treats past un-accumulated income as part of the relevant property chargeable to the TYA charge under s.64 from applying to income that is held outside the UK or AUT or OEIC where S:

• Is alive and not a long-term UK res immediately before the TYA, or
• Has died on or after 6 April 2025 and was not a long-term UK res immediately before death, or
• Died before 6 April 2025 and was not domiciled in the UK when the property was settled.

(iii) GROB

New s.102(7A) FA 1986:

Relief from GROB rules preserved for property gifted by non-dom S into settlement pre-30 Oct 2024, where the property:

• Was excluded property under (old) s.48(3) or (3A) IHTA immediately before 30 Oct 2024.
• Remains settled property between gift and GROB event.
• Is situate outside UK (and not Sch A1 property) or AUT or OEIC immediately before the GROB event.

NB – No relief where S had “formerly domiciled resident” status for 2024/25

Double Tax Agreements (Estate Taxes)

Consider if Double Tax Ag for IHT applies to exclude IHT, where S was domiciled for treaty purposes in the other treaty country. E.g. USA/UK treaty SI 1979/1454.

• Art 5(4):
  “Tax not imposed in the UK on [property comprised in a settlement, excluding UK land and UK PEs] if at the time when the settlement was made the settlor was domiciled in the US and was not a national of the UK”.
• Art 4:
  “An individual was domiciled in the US if he was a resident (domiciliary) thereof or if he was a national thereof and had been a resident (domiciliary) thereof at any time during the preceding 3 years”.

Options – Wind Up the Settlement

Consider:

• S, not actually UK-dom on 30.10.2024, becomes non-UK-res for 2025/26 and thereafter.
• Wait two further tax years (if necessary) until property becomes excluded property again.
• If it is, or once it is again excluded property, distribute to non-resident beneficiary(ies) ; watch ‘onward gifting’ rules.
• IHT ‘exit’ charge (if it became a relevant property settlement).
• If S is a beneficiary, s.102B(4) FA 1986 deemed PET, but of excluded property.

Will Planning – Don’t

Individual who is not long-term UK res should not leave a will creating an IPDI settlement for a person who is (or may become) a long-term UK res.

The property will not be excluded property while the IPDI-holder is a long-term UK res (s.48ZA(5) IHTA) and could therefore be chargeable on the IPDI-holder’s death or termination of the IPDI.

Best to leave on discretionary trusts instead – and don’t appoint an IIP within 2 years of death which would create a deemed IPDI under s.144 IHTA.

Temporary Repatriation Facility (“The TRF Charge”)

S.41 and Sch 10 FA 2025, where applicable, allow designation and payment of TRF charge (12% or 15%) on:

• Capital payments chargeable under s.87 TCGA in any of the 3 years, so far as matched to unmatched gains that have arisen prior to 2025/26 (para 3).
• And similarly OIG amounts (para 4) and Sch 4C TCGA capital payments (para 5).
• Certain capital payments treated as income (of Settlor or other recipient) arising in any of the 3 years (paras 6 and 7).

Changes to APR and BPR

Budget Press Release & Trust Consultation Paper dated 27.2.2025 indicate the following changes:

• shares traded on non-listed exchanges such as AIM just entitled to 50% relief;
• 100% reliefs to be restricted to a combined limit of £1m;
• other assets currently eligible for 100% relief to be eligible for 50% relief above the £1m threshold

Note

6. Rules apply to transfers on death on or after 4.2026 but also to lifetime transfers on or after 30.10.2024 if the donor dies on or after 6.4.2026 but within 7 years of the transfer.
7. No cap on relief for PETs and ICTs made on or after 10.2024 where transferor survives 7 years.
8. No changes intended when transfer already just eligible for 50%.

Changes to APR and BPR (2)

1. No intention for unused allowances to be transferable between spouses. So clearly going to be desirable to ensure both spouses own sufficient assets to utilise their £1m100% allowance.
2. Each Individual’s £1millon 100% allowance will renew every 7 years.

• Relevant property trusts created before 30 October 2024 to be entitled to 100% relief on £1m of assets previously eligible for 100% relief. 50% relief on excess value.

2024. £1m threshold intended to be apportioned between settlements when created on or after 30 October 2024. Allocated in chronological order.
2025. Property subject to GWR on or after 30.10.2024 likely to be subject to cap even if original gift earlier.

Example of Impact of Cap

Example: H makes following absolute gifts to his son (“S”) and daughter (“D”):

1. 10% shares in TradeCo to S on 11.2024 with £800K value transferred;
2. Land used by TradeCo (50% relief) to S & D equally on 12.2025 with £1m value transferred.
3. 5% shares on 12.2026 with £400K value transferred to D.

H dies on 30.11.2031. By his will, H leaves 5% of shares to D (worth £400K) and 80% shares to his spouse W. W dies on 5.12.2033 and leaves 80% shareholding (worth £6.4m) to D & S equally.

Gift (a) is exempt (just) but Gifts (b) and (c) are chargeable. Neither gift (a) nor (b) reduces £1m 100% relief allowance and so Gift (c) qualifies for 100% relief as does testamentary gift to D. H’s gift to W I exempt and so £200K of H’s 100% relief allowance is unused.

W’s testamentary gift to D is chargeable and first £1m qualifies for 100% relief and balance at 50%. H’s unused allowance is not carried across, thereby increasing IHT on W’s death by £40K (£200 x 20%).

Impact of the Cap: Example (2)

Example (continued):

• If W had varied H’s Will to pass an additional £200K of shares down to S & D equally, full use would have been made of H’s £1m allowance.
• What if H had died on 30.10.2031?
• Gift (a) would have become chargeable. £1m cap on BPR would have applied;
• VT by Gift (a) reduced to nil;
• VT by Gift (c) attracts 100% BPR on £200K and 50% on £200K. Net VT: £100K taxable at 24% = £24,000.
• Testamentary Gift to D: BPR only at 50%: Net VT of £200K taxable at 40% = £80,000.

Qualifying Property held by Trusts

In relation to 10 yearly charges and exit distributions on or after 6.4.2026:

• Combined £1m 100% relief allowance for qualifying property held as “relevant property” when calculating periodic and exit

charges: 50% relief for excess.

• VT attributable qualifying property held on “old style” qualifying IIPs subject to individual life tenant’s
• Trust’s £1m allowance will refresh every 10
• Trust’s £1m allowance will apply to exit charges within 10-year
• £1m allowance used on exit charges will reduce the 100% allowance available on next 10-year anniversary
• Tax rate on distributions following 10-year charge on or after 4.2026 will be calculated without taking account of APR/BPR but distributions of qualifying property will still get relief.

Trust Property: Transitional Provisions

• PETs and LCTs made before 10.2024 not affected by changes.
• Qualifying Property settled before 10.2024 which exits Trust will not be subject to £1m cap until next 10-year charge on or after 6.4.2026.
• Exit charge events from such trusts prior to 10 year anniversary will not use up £1m allowance on 10-year
• £1m allowance will not apply to impose 20% charge on ICTs made during transitional period provided transferor survives ICT by 7

APR/BPR on such ICTs will not reduce £1m allowance on later chargeable transfers.