UK Tax Reform 2025: The End of the Non-Dom Era - Key Changes, Strategic Implications, and Why Gibraltar Could Be the Next Best Alternative.

Introduction

On 6 April 2025, the UK will officially transition away from its traditional domicile-based tax system to a new regime based entirely on residence. This shift effectively abolishes the long-standing benefits of the non-dom regime, including the remittance basis. For advisers and non-domiciled individuals, it signals a major change in wealth planning and tax structuring.  What follows is a summary of the key changes, and points to consider, based on a review of all documents published by the UK's HM Treasury in support of the announcement at the first budget of Chancellor Rachel Reeves on Wednesday 30 October 2024.

Key Changes to the Non-Dom Regime

Abolition of the Remittance Basis
Previously, non-domiciled residents could choose to be taxed only on UK income and gains, and on foreign income and gains when they were remitted to the UK. From April 2025, all UK residents will be taxed on their worldwide income and gains as they arise.

4-Year Foreign Income & Gains (FIG) Regime
The new system introduces a 4-year relief for foreign income and gains. This 100% relief is available to new arrivals who have not been UK tax residents in the prior ten years. This window aims to provide a temporary buffer for individuals relocating to the UK.

Transitional Relief Measures

Temporary Repatriation Facility (TRF)
The TRF allows former remittance basis users to repatriate pre-2025 foreign income and gains at a reduced tax rate. The rates are set at 12% for the first two years and 15% in the final year of this limited 3-year window.

Capital Gains Tax (CGT) Rebasing
Existing and past remittance basis users will have the opportunity to rebase their foreign assets to their value on 5 April 2017. This option applies when disposing of assets under certain specified conditions.

Inheritance Tax (IHT) Changes

Moving from Domicile to Residence
The new rules replace the domicile-based Inheritance Tax system with a residence-based one. Under this system, individuals who have been UK residents for 10 out of the last 20 years will have their global estate brought into the scope of UK IHT. Furthermore, assets within trusts will be assessed based on the residence status of the settlor.

Anti-Avoidance Measures

Call for Evidence
In light of these changes, the UK Government is also launching a review of offshore anti-avoidance rules. This aims to address ambiguities in Settlements legislation and Transfer of Assets Abroad provisions. A formal consultation on specific proposals is planned for 2025.

Challenges for Non-Doms

The transition to a residence-based system marks a significant change for non-doms, bringing with it several challenges:

• Increased Tax Exposure: The abolition of the non-dom regime means full UK taxation on global income and gains, effectively ending the previous advantages of the remittance basis.
• Loss of Wealth Planning Flexibility: The new rules limit the use of offshore structures to shield foreign income from UK taxes.
• Trust Structures Under Pressure: Offshore trusts, previously protected under the non-dom rules, are expected to come under greater scrutiny. Non-doms may need to rethink their trust arrangements to align with the new rules.
• Limited Transition Relief: While the TRF offers a short-term option, it comes with added compliance requirements and increased costs for non-doms who need to regularize offshore income.

Why Gibraltar Could Be an Attractive Alternative

For non-doms seeking an alternative jurisdiction, Gibraltar offers several benefits:

• Tax Efficiency: Gibraltar has a competitive tax system, with no inheritance or wealth taxes and personal income tax efficiencies.
• Flexibility in Structuring: Gibraltar’s regulatory environment is aligned with international standards (OECD and FATF), providing flexibility for structuring trusts and businesses.
• Political Stability: Gibraltar’s long-standing political and regulatory stability makes it an attractive jurisdiction for high-net-worth individuals considering a move.

It's not just about tax, either

Gibraltar offers an exceptional Mediterranean lifestyle in a unique cultural setting, blending British familiarity with southern European charm. With over 300 days of sunshine, residents enjoy access to a fantastic quality of life.  Whether it's an outdoor lifestyle and a range of sports you're interested in, Gibraltar offers the best facilities at low cost.  Exploring the countryside across the border in Spain during the cooler months, or the beaches in the summer, Gibraltar is also an excellent base from which to improve your golf game at one of the many world-class courses in close proximity. Some of Europe's best cycling roads are just over the border and, for those of you with a skiing habit, Sierra Nevada is a 3 hour drive away. 

For a full list of reasons why Gibraltar makes sense, visit our Moving to Gibraltar page. 

Conclusion

The upcoming abolition of the non-dom regime signals a profound change in the UK’s tax landscape. For non-domiciled individuals, this calls for a reassessment of current tax strategies and a search for alternative jurisdictions to preserve wealth. As these changes take effect, exploring options like Gibraltar could provide a viable pathway for those impacted by the reform.

Further information

All the source documents for this article can be located on HM Treasury's holding page for the announcement of the changes to the non-dom regime. You can access this page by following this link: https://www.gov.uk/government/collections/changes-to-the-taxation-of-non-uk-domiciled-individuals