Non-Doms benefit from an easy exit

Upcoming changes to the UK tax regime for non-doms could inadvertently worsen the budget deficit. The government’s newly introduced transitional rules, which come into force in April 2025, could accelerate the departure of non-dominants, reducing potential tax revenues.

A lucrative one-way ticket?

The new rules, which came into force on April 6, 2025, will end the current reliance on domicile as a factor in determining tax. For a long time, the UK was the only country to take into account an individual’s domicile status. Instead, a person’s tax residence will determine whether their worldwide income and assets fall within the UK’s IHT regime. Non-UK residents for at least 10 of the last 20 tax years will be subject to IHT on their worldwide assets, even after they have left for a period of ten years (known as the Ten Year Tail).

However, the proposed transitional rule allows non-residents who plan to leave the UK next year to avoid this new 10-year IHT period, creating a lucrative short-term opportunity for those already planning to move.

Impact on offshore trusts

The reforms will also have significant implications for trusts. Currently, trusts holding non-UK assets are generally exempt from IHT as long as the settlor is not domiciled in the UK. However, from April 2025, the IHT status of the trust will depend on the residence status of the settlor.

Previously, a trust could enter and exit the inheritance tax system depending on whether the settlor was considered a long-term UK tax resident. This introduces additional complexity for administrators, who do not always maintain regular contact with constituents over time.

Trustees could also face “exit charges” on non-UK assets if the settlor ceases to be a long-term resident.

Urgent decisions for non-Doms

With just months until the rules come into force, non-residents should consider whether to move to countries with more favorable tax regimes, some of which offer no IHT.

Next steps

As the deadline for the new rules approaches, please contact us if you need UK tax help.