Key takeaways
New UK residence regime now applies
Foreign income relief available for qualifying new residents.
UK residence drives tax exposure
Residence status determines income, gains and inheritance taxes.
Pre-arrival planning remains essential
Early structuring can significantly improve tax efficiency.
This note provides a general outline of the UK tax system and sets out a number of tax planning options which a foreign individual should consider if they are looking to move to the UK. This note should not be used instead of specific legal advice.
The UK’s new residence regime, implemented on 6 April 2025, determines an individual’s tax position in the UK.
The old domicile rules
UK law relating to domicile was complex. Domicile is distinct from the concepts of nationality or residence, but in essence, an individual is domiciled in the country that he considers to be his permanent home. When an individual arrived to the UK, he would not normally become UK domiciled if he intended, at some point in the future, to leave the UK.
The old domicile rules are still relevant for individuals who have lived in the UK prior to 6 April 2025 but will have no impact on anyone arriving after that date.
The new residence regime
The new residence regime was implemented on 6 April 2025.
The new regime means that foreign income and gains (FIG) are available to individuals for the first four tax years, post arrival to the UK (exempt period), providing they have been tax resident outside the UK for a period of more than 10 years (new resident).
Under the regime, when a claim is made for the exempt period, a new resident will be able to remit FIG to the UK free from charges. After the exempt period, any foreign income and gains remitted will be subject to tax under the Temporary Repatriation Facility (TRF) rules. The TRF measures are in place for three tax years, 2025/26, 2026/27 and 2027/28. An initial rate of 12% applies to funds brought into the UK in the 2025/26 and 2026/27 period. A 15% rate applies to funds that are brought into the UK in the 2027/28 tax year.
At the end of the exempt period, there will be no rebasing, so gains or income generated after the exempt period will be fully taxable, tracked to acquisition values, rather than rebased to values on arrival to the UK or from the end of the exempt period.
Inheritance Tax (IHT) also applies to the estate of individuals after the exempt period.
Assets comprised in a settlement are subject to the rules and taxability will depend upon whether a settlor meets the residence criteria or is within the provision at the time the assets are settled and/or when charges such as 10-year anniversary charges or exit charge arises.
Tax residence for any one tax year is determined by the Statutory Residence Test. Treaty residence or non-residence and split years are ignored.
The Statutory Residence Test (SRT)
The UK statutory residence test provides a test divided into three parts:
the automatic overseas test
the automatic residence test
the sufficient ties test.
The automatic overseas test will conclusively exclude individuals from UK residence. The criteria are as follows:
the person has been a non-UK resident in each of the previous three tax years and he is present in the UK for fewer than 46 days in the tax year in question, or
the person has been resident in the UK in one or more of the previous three tax years and he was present in the UK for fewer than 16 days in the tax year in question, or
the person leaves the UK to carry out full-time work abroad, is present in the UK for fewer than 91 days in the tax year and works for less than 31 days in the UK in the tax year in question. (A working day requires more than three hours of work).
The automatic residence test - if the automatic overseas test does not apply an individual will be UK resident in a particular tax year if the automatic residence test will apply to him. The criteria are as follows:
the person is present in the UK for 183 days or more in the tax year, or
the person only has a home or homes in the UK, or
the person carries out full-time work in the UK. ’Full-time’ means more than 75% of working days are in the UK.
An individual who does not satisfy the criteria of the automatic overseas test, to be conclusively a non-UK resident, or the automatic UK residence criteria, so as to be conclusively a UK resident, will need to determine residence by reference to the sufficient ties test.
The sufficient ties test is a tie breaker test which determines the residence status on (a) how many of the specified ‘connecting factors’ apply to them and(b) how many days are spent in the UK in the tax year in question. The greater the number of connecting factors that apply to the individual the fewer the number of days they are permitted to be present in the UK without becoming a UK resident.
Individuals are categorised as either ‘arrivers’ or ‘leavers’ by reference to whether they have been a UK resident in any of the three tax years immediately preceding the tax year in question. Naturally, it is more difficult to be a non-UK resident as a ‘leaver’ than as an‘arriver’. If a person is an ‘arriver’ (having been a non-UK resident in each of the three tax years preceding the tax year in question) the connecting factors are:
having a UK resident family
having a place to live in the UK
having substantive UK employment
spending 90 days or more in the UK in either of the two previous tax years.
For ‘arrivers’ the connecting factors tie in with the number of days spent in the UK as set out in the table below:
Days spent in the UK | Impact of connection factors on residence status |
|---|---|
Fewer than 46 days | Always non-resident |
46-90 days | Resident if has four factors |
91-120 days | Resident if has three factors |
121-182 days | Resident if has two factors or more |
If a person is a ‘leaver’ (having been a resident in one or more of the previous three tax years) the relevant connecting factors are:
having a UK resident family
having a place to live in the UK
having substantive UK employment
spending 90 days or more in the UK in each of the previous two tax years
spending more time in the UK than in any other single country.
For ‘leavers’ the connecting factors are combined with days spent in the UK to determine residence status as follows:
Days spent in the UK | Impact of connection factors on residence status |
|---|---|
Fewer than 16 days | Non-resident |
16-45 days | Resident if has four factors or more |
46-90 days | Resident if has three factors or more |
91-120 days | Resident if has two factors or more |
121-182 days | Resident if has one factor or more |
Income tax
Income tax relates to income earned and is dependent on whether this is salary or investments income.
Individuals have an annual personal allowance of up to £12,570, which means that all income below this amount is not taxed, unless they earn higher rate income.
Married persons (or those in a civil partnership) are taxed independently on their individual incomes.
The tax rates are gradual, the UK top rate of income tax is 45% (or 47% on investment income) for individuals receiving taxable income of £125,141 or more. The higher rate of tax is 40% (or 42% on investment income), on earnings between £50,271 and £125,140 and the basic rate of tax is 20% (or 22% on investment income) which applies to income of £12,571 and £50,270.
Capital Gains Tax
The following Capital Gains Tax (CGT) rates apply to gains:
18%, 24% and 32% tax rates for individuals for residential property and carried interest.
18% and 24% tax rates for individuals on all other gains.
14% where Business Asset Disposal Relief (BADR) applies. From 6 April 2026, the rate increases to 18% in line with the tax rate for other gains.
Again, married persons (or those in a civil partnership) are taxed independently on their individual gains.
Gains on foreign currency bank accounts are exempt from UK CGT. However, gains made on foreign assets such as shares or properties could be taxable.
Gains on the disposal of certain types of assets such as a main residence, UK government securities, cars, life assurance policies, savings certificates and premium bonds may be relieved from capital gains tax.
Inheritance Tax
Inheritance tax (IHT) is chargeable on gratuitous transfers of wealth both during life and on death.
With effect from 6 April 2025, UK IHT is assessed under the new residence base system. Where an individual has been UK resident in the UK for at least 10 out of the last 20 tax years, before a death or transfer into a trust, that individual is considered as ‘long-term resident’. Therefore, they become liable to IHT in respect of their worldwide assets. The domicile status of the individual is no longer deciding factor for the scope on which UK IHT is charged.
An individual’s residence status for determining whether they are long-term resident is determined using the SRT.
Individuals that are dual resident and are considered as treaty resident in another jurisdiction under a double tax agreement, are still treated as UK tax resident for the purpose of determining if they are long-term resident.
A long-term resident remains fully within the scope of IHT until they have been non-UK tax resident for between three and ten consecutive tax years. This tail is 10 years if the individual was resident in the UK for 20 tax years or more and is shortened if the individual was resident in the UK for between 10-19 years, as follows:
The tail is three tax years where the period of UK residence is between 10-13 years, or
The tail is increased by one tax year for each additional year of UK residence up to a maximum of 10 years.
Certain lifetime gifts are exempt from IHT provided the donor survives seven years and does not retain any benefit. Strict rules apply in cases where the donor retains or reserves a benefit out of the gift (eg gives away his house but continues to live in it).
Prior to 6 April 2025, transfers of property between spouses of the same domicile were exempt from IHT, as are transfers by a spouse with a non-UK domicile to a UK domiciled spouse, providing an election was made.
From 6 April 2025, the spouse that is not a long-term resident can elect to be treated as a long-term resident. This election lasts until the individual has been non-UK resident for 10 consecutive tax years. Therefore, an even greater amount of care is needed before a decision to make such an election is made. Where the spouse elects to be treated as ‘long-term resident’ any lifetime transfers are exempt from IHT. Where one spouse is not long-term resident the exemption is restricted to the nil-rate band at the time of the transfer (currently £325,000).
IHT is charged at a rate of 40% on the net chargeable estate.
Exemptions from IHT are also available for:
annual gifts not exceeding £3,000 per annum in total (this can be carried forward for one year only)
gifts on the occasion of marriage - each parent may give up to £5,000, each grandparent £2,500 and any other person £1,000 free of IHT
normal expenditure out of income
gifts to qualifying charities.
Subject to certain conditions, the following reliefs are also available:
business property relief at 50% or 100% of the value of the property
agricultural property relief at 50% or 100% of the value of the property.
High value residential properties
The following rules have been implemented to discourage the ownership of UK properties through corporate entities:
a higher rate of Stamp Duty Land Tax is charged when properties are purchased by corporate entities
an annual charge applies when properties are purchased by corporate entities and used by connected individuals
a charge to CGT on the disposal of property sold by corporate entities
the protection from IHT has been removed.
Planning prior to arrival
Legal advice should be taken before coming to the UK to explore structuring opportunities available to reduce your taxable exposure to UK and worldwide tax.
Some of the opportunities available include:
maximizing the value of your pre arrival assets, to reduce potential capital gains in the future
structuring your assets to reduce the potential liability to income tax and capital gains tax
structuring your assets to reduce exposure to IHT
purchasing UK assets in tax efficient structures.
Our offering to individuals
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Through our private client services offering we assist wealthy individuals, families and entrepreneurs to manage their personal affairs through tax, succession and estate planning advice across multiple jurisdictions. Our teams work across borders and practices to offer a seamless service as an individual or family office, onshore or offshore.
Our team comprises lawyers and accountants with considerable experience in advising international families and their trustees on a wide range of issues. Our focus is the long-term management of your worldwide wealth.
Specialisations include:
cross-border taxation with special emphasis on the creation of bespoke international tax structures for individuals and corporates
structuring property, yacht and aircraft acquisitions, onshore and offshore.
Find out more about our Wealth Planning and Structuring team or contact us today to discuss how we can help.
