Taxation of Non-UK Domiciled Individuals
UK resident non-domiciled individuals (non-doms) are people who live in the UK but are considered to have their permanent home (domicile) in another country and do not intend to stay in the UK permanently or indefinitely.
Until 5 April 2025, special tax rules applied to individuals who were UK tax residents but domiciled outside the UK (typically determined by their father’s permanent home at the time the individual was born). These individuals could choose to be taxed either on the arising basis – paying UK tax on their foreign income and gains as they arose, or on the remittance basis, under which only foreign income and gains brought into the UK were subject to UK tax.
From 6 April 2025, a new regime came into effect. All UK residents will be taxed on the arising basis and the remittance basis is no longer available. However, a new Foreign Income & Gains (FIG) regime has been introduced for individuals in their first 4 years of UK tax residence, following a 10 year period of non-residence. Those eligible can claim this regime and will not pay UK tax on foreign income and gains arising during those 4 years.
Individuals who previously used the remittance basis will still be taxed on any pre-6 April 2025 foreign income and gains that are remitted to the UK. HMRC has published a new manual detailing the operation of the new rules, available here.
Inheritance Tax (IHT)
The IHT rules have also changed. Now, non-UK assets will fall within the scope of IHT if the individual has been UK resident for at least 10 out of the last 20 tax years prior to the year in which the chargeable event (such as death) occurs. These individuals are considered ‘long-term UK residents.’ If a long-term UK resident becomes non-resident, they will remain in scope for IHT for a minimum of 3 years and a maximum of 10 years, depending on the length of prior UK residence.
Holiday Lettings and Property
As of 6 April 2025, the Furnished Holiday Lettings (FHL) regime has been abolished. If you own a property that previously qualified as an FHL, it will now be treated as part of your main UK or overseas property business. As a result, several tax advantages previously available under the FHL regime will no longer apply, including:
• Interest relief restrictions: Tax relief for interest on loans related to the property will now be limited to the basic rate of 20%
• Capital allowances: Most new capital expenditure will no longer qualify for capital allowances. Instead, the replacement of domestic items relief may apply where relevant
• Loss of CGT reliefs: You will no longer be eligible for Capital Gains Tax reliefs designed for trading businesses, such as Business Asset Disposal Relief (BADR), Gift Relief and Rollover Relief
• Pension relief impact: Income from the property will no longer count as ‘relevant UK earnings’ when calculating the maximum pension contributions eligible for tax relief
Despite the changes, there are transitional provisions that may help ease the impact:
• Carried forward losses: Losses from an FHL business incurred before 6 April 2025 can be carried forward and set against profits from your ongoing UK or overseas property business, as appropriate
• Capital allowances pool: Any existing FHL capital allowances pool as at 5 April 2025 can be carried forward into your general property business. You may continue to claim writing-down allowances on the remaining pool balance
• Business Asset Disposal Relief (BADR): If your FHL business ceased before 6 April 2025 and met the qualifying conditions, you may still claim BADR on a qualifying disposal made within 3 years of cessation
If your property previously qualified under the FHL regime and you’re unsure how the changes affect you, please don’t hesitate to contact us for tailored advice!
Mandatory Payrolling of Benefits Delayed
The government has announced a further delay to the introduction of mandatory reporting and paying of income tax and class 1A National Insurance Contributions on benefits in kind through payroll software.
Mandatory payrolling will now be introduced from 6 April 2027, instead of the previously planned date of 6 April 2026. According to HMRC, the delay is intended to give employers, payroll professionals, software providers, tax agents and other stakeholders additional time to prepare for the change.
UK-India Trade Agreement
The UK and India have finalised a landmark free trade agreement, projected to boost bilateral trade by £25.5 billion annually by 2040. A key provision exempts Indian workers seconded to the UK for up to 3 years from paying National Insurance Contributions – a measure consistent with similar agreements the UK holds with other countries. However, the exemption has sparked criticism from political opponents, who argue it creates a “two-tier” tax system that could unfairly disadvantage British workers.
How We Can Help
At Clear Vision, we’re always eager to guide and assist our clients – how ever you need us to support you through your journey as a business owner, we’re here for you!
If you have specific questions about any matters within this month’s newsletter and how they may affect you or your business, do please get in touch with us.
This month’s Clear Vision positive thought:
“TIf I cannot do great things, I can do small things in a great way.”
Martin Luther King Jr