April tax system changes will have a wider impact than you may realiseWritten on July 1, 2025 by Jane Page
April 2025 sees the start of far-reaching changes to the tax system which will have a wider impact than you might realise.
Started by the then-Chancellor Jeremy Hunt and now legislated by Rachel Reeves, these changes were intended to remove the tax advantages for “non-domiciled” individuals, and they have done that. But by removing the reliance on an individual’s domicile, the tax system has had to be “rewired” so that it looks at a person’s residence status instead, and that means the changes affect a much wider group of people.
Inheritance tax when you move abroad
For the person who emigrates and buys a property, this may mean that their foreign property is outside of the scope of UK inheritance tax (IHT), whereas in the past, that person was likely to remain domiciled in the UK which will have meant that their entire estate was subject to IHT.
From April 2025, if a person is not a long-term UK resident, UK IHT is only assessed on their UK assets. A long-term resident is a person who has been resident in the UK for 10 of the past 20 years (although there are some exceptions). This will be a real benefit to people who move abroad, both because it was previously very difficult to argue that you had lost your “UK-domiciled” status but also because that created uncertainty; the rules will now be clear and unarguable.
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New moves to the UK
The more widely known intention of these changes was to ensure that everyone who lives in the UK will pay UK tax on their foreign income and gains. This also removes any reference to “remittances”, where non-domiciled individuals were incentivised to leave money offshore.
However, there is a new short-term regime for people when they first come to the UK. The new rules exempt foreign income and gains from UK tax for the first four years of residence. This applies to anyone who has been non-resident for 10 tax years, even if they originated in the UK.
However, after four years of residence, everyone who remains in the UK will have to pay tax on their worldwide income and gains, and as people also may have tax to pay in the country where their income and gains arise, we are likely to see people having to make foreign tax credit claims or look to double tax treaties for protection. These changes will also bring some non-resident trusts into UK taxation.
Transitional rules
There are some transitional rules to soften the impact of these changes.
- A former remittance basis user will be able to use the value of a foreign asset at 5 April 2017 rather than their original purchase price if that gives a better tax outcome (i.e. if the cost has increased over the years) to reduce the capital gains tax due on the sale of that asset. This claim is available indefinitely on an asset-by-asset basis.
- There is a temporary regime for people who have used the remittance basis in the past where historical foreign income and gains can be brought into the UK with a lower rate of tax than usual. The rate is 12% for the 2025-26 and 2026-27 tax years, and 15% for the 2027-28 tax year. Thereafter, remittances of historical foreign income/gains will be taxed at the person’s top rate of tax. For someone who has used the remittance basis for several years this is an excellent but time-limited opportunity to bring funds to the UK.
If you have any questions about the implications of these changes, please get in touch via info@kirkrice.co.uk
Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.
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