UK Inpatriate Regime (UK inbound tax planning)

The UK government abolished, as of 6 April 2025, the preferential tax regime for non-UK domiciled individuals,  often referred to as ‘non-dom’ status. From that date, the concept of ‘domicile’ was displaced as a relevant factor for UK income tax, capital gains tax and inheritance tax (IHT) purposes, in favour of a new fiscal landscape of residence’. 

The previous ‘remittance basis’ of taxation for non-doms was also removed, together with protected trusts and excluded property reliefs.

There will be two residence-based regimes for new residents, one for income tax and capital gains tax (CGT) purposes and one for inheritance tax (IHT) purposes.

A Temporary Repatriation Facility was introduced to enable former non-UK domiciled individuals to bring funds into the UK at a special tax rate.

The ‘remittance basis’ of taxation, which could once be applied during the first 15 years of an individual’s UK tax residence, meant that qualifying individuals were subject to UK tax only on UK source income and gains, as well as any offshore income and gains that they chose to remit to the UK. This was free of charge in the first seven years and subject to an annual remittance basis charge thereafter.

As of 6 April 2025, the ‘remittance basis’ of taxation was replaced for those moving to the UK by a simplified ‘FIG’ regime, under which qualifying individuals are not taxed on any of their non-UK source income and gains for up to four tax years from their first year of UK residence. There is no annual or flat-rate charge to access the FIG regime.

During this four-year period, qualifying individuals are permitted to bring FIG into the UK without any charge to UK tax. After the period has ended, all worldwide income and gains will be subject to tax in the UK at the relevant marginal rates, whether or not the FIG is actually remitted to the UK.

It should be noted that the following categories of income and gains are excluded from the relief:

• Foreign gains realised on the disposal of interests in companies whose value is substantially derived from UK land and property.

• Chargeable event gains from the surrender of a foreign life insurance policy.

• Income received in connection with performance as a sportsperson or entertainer, anywhere in the world.

A ‘foreign employment election’ can be made to claim relief for foreign workdays, which is capped annually at the lower of £300,000 or 30% of the individual’s total employment income for the year. This is a continuation of the Overseas Workday Relief rules but has been extended to four years.

The FIG regime does not apply automatically. Qualifying individuals are required to quantify the amount of FIG for which relief is being claimed and include these amounts in their tax returns. The deadline for claiming relief is 12 months following the 31 January after the end of the relevant tax year.

Qualifying individuals are permitted to make a claim for either income or gains, or both, and to select specific sources of FIG on which relief is claimed. For income tax purposes, the relief takes the form of a deduction from total income rather than an exemption from tax for the specific items of income that are quantified.

If a FIG claim is made, however, the individual loses their entitlement to both the income tax personal allowance and the capital gains tax annual exempt amount, as well as the ability to claim relief for foreign income or capital losses, for the year of the claim.

The Temporary Repatriation Facility (TRF) is available to anyone who is UK tax resident and has been a past remittance basis user in any tax year up to and including 2024/25, including individuals with deemed domiciled status.

Qualifying individuals who have unremitted FIG arising before 6 April 2025 can elect to designate all or part of the FIG and pay tax at a reduced rate to bring these amounts to the UK. The rate of tax is set at 12% for the tax years 2025/26 and 2026/27, and 15% for the tax year 2027/28.

It is not necessary to physically move the funds to the UK during this time period. The tax will be due on the full amount of FIG designated in the year that the election is made rather than when the funds are actually brought to the UK.

From 2028/29, any remittances of income and gains to the UK that have not been designated and taxed under the TRF will continue to be taxed at full rates.

UK inheritance tax (IHT) is paid on the value of an individual’s net estate at death (calculated as the value of their assets, minus debts, and after calculating tax reliefs available). IHT is charged at 40% above a threshold, currently set at £325,000. This threshold is often termed the ‘nil-rate band’.

‘Gifts’ made during someone’s lifetime are usually known as ‘potentially exempt transfers’, because they do not become part of someone’s net estate if they are made seven or more years before their death. IHT charges may apply at a progressively lower rate between seven years and the time of death.

Previously, liability to UK IHT on assets outside the UK was determined by the owner’s domicile status. From 6 April 2025, however, UK IHT also moved to a residence-based system. The distinction between individuals who are UK domiciled (or deemed domiciled) and those who are not, is replaced by a distinction between those who qualify as a long-term resident and those who do not.

Previously, the IHT status of a trust was determined by the domicile status of the settlor at the time of settlement. Individuals who were not domiciled or deemed domiciled in the UK were not liable to IHT on assets defined as ‘excluded property’, which generally referred to assets situated outside the UK. 

From the point they become deemed domiciled in the UK, however, IHT was chargeable on their worldwide estate. It was therefore common practice for non-domiciled individuals to ‘shield’ their overseas assets from IHT by placing them in an ‘excluded property trust’ prior to becoming deemed domiciled.

From 6 April 2025, the status of a trust will reflect the current residence status of the settlor. As a result, any trust settled by a UK LTR, will be ‘relevant property’ that is fully subject to UK IHT, with a potential tax charge on settlement, and tax charges of up to 6% on every ten-year anniversary of the trust creation and when capital distributions are made from the trust.

Where a trust is settled by a non-LTR with non-UK assets, however, the trust will be an ‘excluded property trust’ and the assets in the trust will not be subject to UK IHT. This status will not be fixed. If the settlor becomes an LTR, then the trust will be considered ‘relevant property’ and potentially subject to periodic and exit charges.

Where an LTR settlor is able to benefit from the trust, even as a discretionary beneficiary, the assets of the trust will also form part of the settlor’s estate under the Gift with Reservation of Benefit (GWROB) provisions and there will be an IHT exposure on death. This will not apply to non-UK assets settled before 30 October 2024.

Where an LTR settlor leaves the UK and ceases to be an LTR, the non-UK assets of the trust will cease to be relevant property. At that point there will be an IHT exit charge at a rate of up to 6%.