You may have heard about the UK’s new four-year rule and that it can work to your advantage if you are planning to move to the UK.
This discussion has come about because from 6 April 2025, the Government is introducing a significant change to the taxation of non-UK domiciled individuals (non-doms).
In essence, the previous highly tax efficient scheme is ending – or at least transitioning to something that is fairly unrecognisable.
Now, if you have been non-UK tax resident for at least 10 consecutive years before relocating to the UK, the new rules allow you to benefit from UK tax relief on foreign income and gains for only your first four years of UK residency.
As opposed to under the previous scheme where you could remain non-domiciled if you paid the remittance basis charge (more on this below), you’ll now only get four years of this tax advantage.
The new regime is optional, offers some flexibility to claim in previous years but not others, and has posed an interesting question to those looking to move to the UK:
“Doesn’t this mean I can use the UK as a tax haven for four years?”
Unfortunately, as we hope to explain, it’s not quite that simple.
Transition from the remittance basis
For those currently utilising the remittance basis of taxation – a distinctive feature of the earlier non-dom regime – the final tax year to claim this benefit is 2024/25.
Under the remittance basis, non-UK domiciled residents could opt to pay tax only on the income that they brought into the UK, rather than on their total global income and gains.
This system was particularly advantageous for those with substantial overseas income, allowing them to limit their UK tax liability significantly.
The transition to the new regime, starting from 6 April 2025, marks a significant shift.
From this date, new arrivals and those not previously resident in the UK can benefit from a four-year period during which foreign income and gains are not subject to UK tax, regardless of whether these amounts are brought into the UK.
This is provided they have not been UK tax residents for at least 10 consecutive years prior to their move.
This new system simplifies the process but reduces the period during which non-doms can benefit from favourable tax treatment on their worldwide income.
What if I am already tax resident in the UK?
A critical transitional provision for those who will not qualify under the new four-year rule is the one-year 50 per cent reduction in taxable foreign income for the tax year 2025/26.
This provides some financial relief for individuals who are transitioning from the remittance basis to the new regime of taxation on the arising basis.
This transition, however, necessitates a thorough understanding and strategic planning to mitigate potential tax liabilities and to navigate the complexities of moving from a system that offers significant tax advantages for foreign income to a more restricted, albeit simpler, regime.
As such, if you find yourself confused about the new tax liabilities you might face, please speak to a professional tax adviser.
UK taxes you’ll have to pay after the four-year rule expires
After the initial four-year exemption period, all global income and gains will be taxed on the arising basis, meaning they are taxable regardless of whether they are brought into the UK.
The main taxes that will apply include:
- Income Tax: Charged at progressive rates up to 45 per cent depending on the amount of income.
- Capital Gains Tax (CGT): Charged at 10 per cent or 20 per cent for most assets, and 18 per cent or 24 per cent for residential property, with an annual tax-free allowance.
- Inheritance Tax (IHT): There are proposed plans to shift to a residence based IHT regime. Under the proposed regime if you are resident in the UK for 10 years, you will be charged at 40 per cent on estates above the £325,000 threshold, with various reliefs available.
- National Insurance Contributions (NICs): Varying rates for employees and self-employed individuals, providing qualification for certain state benefits and the State Pension.
Although you may not be planning to stay in the UK past the four-year cut off, we felt that it was important for you to understand the main rates of tax you might face if you did.
Planning for the transition
As the end of the four-year exemption period approaches, it’s crucial to plan for the transition to taxation on the arising basis.
This might involve restructuring investments, reassessing your residency status, or considering how you might use various tax reliefs and exemptions to mitigate your liability.
Effective tax planning is crucial, especially when dealing with international moves and assets.
Under the new rules, there are several strategies you might consider:
- Timing your move to coincide with the most beneficial tax periods.
- Managing your foreign income and gains to maximise the benefits of the four-year tax relief.
- Considering the impact on your long-term financial planning, including investments and retirement funds.
We highly recommend working with a qualified, experienced, and knowledgeable tax adviser during this period to ensure that you navigate the complexities of the UK tax system effectively and to minimise your tax exposure.
