No More Exemptions: UK Residents with Indian Domicile to Face Tax on Foreign Income from April 2025

As of April 6, 2025, the United Kingdom has officially ended the decades-old non-domicile (non-dom) tax regime. UK residents with an Indian domicile or other foreign domicile will now be subject to UK tax on their worldwide income and assets.

Under the previous system, non-doms could claim the remittance basis, which allowed them to avoid paying UK tax on foreign income and capital gains as long as those funds were not brought into the country. This system has now been replaced with a residence-based tax regime that applies to nearly all UK residents.

What are the New Rules?

The UK has moved to a residence-based tax system. This means that tax will depend on where a person lives, not where they are legally domiciled.

• People who move to the UK and have lived abroad for the last 10 years will get a four-year exemption. During these four years, they won’t have to pay UK tax on foreign income or capital gains, whether or not they bring the money into the UK.
• After the four years are over, they will have to pay full UK tax on all global income and gains, just like other UK residents.
• Those who are already living in the UK and have been using the remittance basis but do not qualify for the four-year exemption will be taxed under the same rules as any other resident.

This change will end the current 15-year period of tax relief that many non-doms have enjoyed.

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The abolition of the non-dom regime arose from the government's commitment to creating a fairer tax system where individuals residing in the UK contribute equitably, regardless of their domicile status. The move aims to eliminate perceived tax advantages that non-doms had over ordinary UK residents, ensuring that long-term residents are taxed on their global income and gains.

Inheritance Tax Rules Have Also Changed

• The domicile-based inheritance tax (IHT) system has been replaced by a residence-based approach.
• Anyone who has been a UK resident for 10 out of the past 20 years is now treated as a long-term resident.
• These individuals are now liable for IHT on their worldwide assets, not just UK-based ones.
• Trust assets that were previously shielded may also become taxable if the settlor is considered a long-term UK resident.

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Transitional Reliefs Available

The government introduced temporary reliefs to support those transitioning into the new system.

1. Temporary Repatriation Facility (TRF): Individuals can now bring foreign income and gains earned before April 6, 2025, into the UK at reduced tax rates  - 12% for 2025-26 and 2026-27, rising to 15% in 2027-28.
2. Rebasing of Foreign Assets: People who were using the remittance basis can rebase the value of their foreign assets to what they were worth on April 5, 2017, to reduce capital gains tax on future disposals.
3. Loss of Personal Allowance: Individuals using the FIG regime or TRF lose their personal income tax allowance during that tax year.

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Changes to Overseas Workday Relief (OWR)

• OWR has now been extended to four years.
• It is available to those eligible for the new FIG regime.
• There is a cap of £300,000 or 30% of net employment income, whichever is lower.
• Income earned abroad can now be remitted to the UK without further tax within this period.

How This Affects Indian-Origin UK Residents

This change is particularly important for Indian-origin UK residents who maintain income-generating assets overseas, use offshore trust structures, or plan to pass on wealth tax-efficiently. They must now reassess their financial and estate planning strategies, as foreign income, gains, and inheritances are now within the UK tax net if residency thresholds are met.

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Comparison with Other Countries

Italy continues to offer a flat tax of €100,000/year on foreign income for new residents, valid for up to 15 years. Ireland still retains a remittance-based tax regime, though the UK’s recent reform has increased calls for Ireland to adopt similar residence-based rules. Portugal also offers the Non-Habitual Resident (NHR) regime, granting favorable tax treatment on certain foreign income for ten years.

Conclusion

The UK's transition to a residence-based taxation system represents a fundamental shift in its approach to taxing non-domiciled individuals. Non-doms must ensure full compliance and documentation of foreign income. Offshore trusts and legacy structures should be reviewed immediately. Tax planning strategies should be updated to reflect the UK’s more inclusive global taxation approach.

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