'Residency' Not 'Domicile': UK Tax System's Strategic Transformation

Effective April 6, 2025, the UK implements fundamental reform of individual taxation principles, replacing the archaic domicile concept with modern, transparent residency criteria. This most significant reform in decades radically changes approaches to taxing income, capital gains, and inheritance, directly impacting financial planning for expatriates and internationally mobile wealthy individuals.

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Paradigm Shift: From Domicile to Residency

The historically complex UK domicile tax system previously relied on "domicile"—an individual's connection to a jurisdiction through origin or permanent home. The new paradigm abolishes this often ambiguous category, making tax residency status the cornerstone. From 2025, UK residency for tax purposes becomes exclusively determined by the strict UK Statutory Residence Test, not country of origin or domicile. Individuals with foreign domicile but recognized as UK tax residents will fall under new unified rules.

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New Income and Capital Gains Taxation System

The reform abolishes the previous Remittance Basis regime, which allowed non-doms to pay UK tax only on foreign income brought to the UK. It's replaced by the new UK Foreign Income & Gains (FIG) regime. Its key feature provides temporary relief for new residents. Individuals not UK tax residents for at least 10 previous tax years can exempt their foreign income and gains from UK tax during first 4 years of residency, even if remitted to the UK. After this relief period, transitioning from the UK non-dom regime means worldwide income and gains become taxable on ordinary resident basis.

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Inheritance Tax Implications

UK inheritance tax for residents undergoes equally radical changes. Previously, this tax applied to worldwide assets only for UK-domiciled individuals. The new system introduces "long-term resident" (LTR) concept. Individuals UK tax resident for 10 of the last 20 years automatically acquire LTR status. This triggers UK inheritance tax for residents application to their worldwide estate. Furthermore, after ceasing residency, a 10-year "tail period" applies where former residents maintain inheritance tax liabilities on UK-situated assets.

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Foreign Income & Gains (FIG) Regime: Strategic Features

The temporary UK Foreign Income & Gains (FIG) regime represents a key transitional tool. Its correct application requires strategic approach:

• Access criteria: Available only to "new residents"—those not UK resident for 10 previous tax years
• Automatic application: Unlike previous regime, FIG applies by default; no separate election required
• Limited duration: Relief strictly limited to 4 tax years, making advance planning for post-FIG period critical
• Trusts and structures impact: Income and gains received through trusts and opaque structures may also fall under the regime, requiring review of existing ownership arrangements

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Practical Recommendations for International Individuals

In the new tax reality, individuals with international assets should consider these steps:

• Formal residency assessment: Conduct structured status evaluation using the UK Statutory Residence Test before and after planned relocation
• Strategic entry timing: Coordinate residency acquisition with 4-year UK Foreign Income & Gains (FIG) relief period objectives
• Asset ownership audit: Conduct comprehensive analysis of trusts, holding companies and other structures for compliance with new rules and post-FIG tax consequences
• Full taxation preparation: Develop financial strategy anticipating worldwide income taxation transition well before 4-year period expiration
• Long-term considerations: Individuals planning extended UK stay should understand LTR status implications for UK inheritance tax for residents and plan succession considering the 10-year tail period

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Conclusion: Strategic Implications of Residency-Based System

Abandoning domicile in favor of residency modernizes the UK fiscal system, enhancing transparency and international standards alignment. However, this UK non-dom regime transition fundamentally changes rules for international investors and expatriates. While simpler to apply, the new system offers less flexibility. In this environment, strategic tax planning—including optimal residency timing, asset restructuring, and post-relief preparation—transforms from optional tool to imperative requirement for maintaining financial efficiency and legal certainty.

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