News

On 6 April 2025 the significance of domicile in UK tax law was drastically diminished. It has been replaced with the new concept of “long term residence”.

Unsurprisingly, the consequent headlines and analysis has predominantly focused on those non-domiciled individuals who are now deemed UK long term resident and subject to a much harsher regime of UK taxation. However, there are groups of other internationally mobile persons for whom the new tax regime has also proved highly consequential.

This article focuses on one of those groups: persons born in the UK with a UK domicile of origin and who have been resident outside the UK for the past decade or more (perhaps for overseas work purposes). These persons may now enjoy a better UK tax position than previously, particularly in the event of a return to the UK. We might call these persons ‘returning expats’.

Under the old regime, upon returning to the UK ‘returning expats’ fell into a category of persons called ‘Formerly Domiciled Residents’ or ‘FDR’ – a form of deemed domicile that brought their worldwide assets back into the UK IHT tax net from the start of their second UK tax year.

However, with the Formerly Domiciled Resident regime abolished from April 2025, the UK tax status of these returning expats is now considered with reference to their number of years of residence.

Improved IHT Position

If (broadly speaking) a returning expat has been non-UK resident for more than ten of the last 20 years, upon returning to the UK he or she can now enjoy up to ten years of a more advantageous IHT regime under which UK IHT is imposed only on UK situs assets. Any assets held outside of the UK will not be subject to UK IHT for that period.

It is therefore worthwhile for these individuals to consider changing their asset base to switch from UK situs assets to non-UK situs, and consequently mitigate their UK IHT exposure.

Moreover, these individuals are now able to settle highly advantageous excluded property trusts (trusts holding non-UK situs assets which are exempt from UK IHT). These will continue to be excluded property trusts for so long as the settlor remains non long term resident – i.e. up to ten years. Particularly for elderly returning expats, it may be worth considering settling assets into trust whilst they are non-long term resident: should they die prior to collecting sufficient years to become UK long term resident, those trusts will continue on after death with the preferential treatment of being outside of the scope of UK inheritance tax.

4 year FIG regime

Returning expats will also potentially be able to utilise the new ‘FIG’ regime, which grants freedom from UK income tax and capital gains tax on most income and capital gains received or realised overseas for a period of four years. Moreover, the assets deriving from this income and capital gains can actually be brought into the UK free of UK tax. This is a notable benefit compared to the prior remittance regime, where tax was charged when foreign income or capital gains were brought into or enjoyed in the UK. Of course, the availability of the new FIG regime, at four years, is much shorter than that of the remittance regime, which was available for up to 15 years.

The eligibility is stricter than the test for being non long term resident for IHT purposes, and requires an individual to have been non-UK resident for ten consecutive tax years prior to becoming UK resident. However, the remittance basis was of course not available to Formerly Domiciled Residents – whereas such persons can now utilise the new FIG regime.

Finally, distributions from non-resident trusts which would otherwise be taxable can also be received tax free under this regime. The benefit of receiving tax free distributions from non-resident trusts should be weighed with the fact that distributions may be subject to UK IHT within the beneficiary’s personal ownership.

Conclusion

Individuals born in the UK and with a UK domicile of origin, who now are considering retuning (or may have recently returned to the UK) after spending significant time abroad, ought to check their UK tax status and the potential opportunities for them under the new regime. They might be pleasantly surprised.