End of the Resident Non Domiciled Tax Regime (RND) in the UK: Consequences and Possible Alternatives

Understanding the new Tax Regime in the UK

Tax rules for non-domiciled residents are generally designed for individuals who do not have their domicile in the jurisdiction they currently live in. In the context of the United Kingdom (UK), the UK RND Tax Regime was established to offer tax benefits to international individuals who live in the UK but have their permanent home («domicile») outside of it. However, since the UK RND Tax Regime will be abolished from 5 April 2025, significant changes are imminent.

Tax Implications under the New UK Tax Regime

There are some transitional rules for new arrivals to the UK and former UK non-domiciled resident taxpayers.

The new regime will provide 100% relief on eligible foreign income and gains (FIG) for new arrivals in their first four years of residence, provided they have not been UK resident in the 10 years immediately prior to their arrival.

Former UK non-domiciled resident taxpayers not eligible for the 4-year FIG regime will pay tax at the same rate as other UK resident individuals on any newly arising FIG although there will be a temporary repatriation facility (TRF). 

UK non-domiciled resident taxpayers who have formerly claimed the remittance basis and have untaxed FIG will be able to make an election to designate amounts derived from previously untaxed and unremitted FIG that arose prior to 6 April 2025 for a period of 3 tax years, from 6 April 2025. Designated amounts will be charged to tax at a rate of 12% in tax years 2025/26 and 2026/27, with the rate rising to 15% in tax year 2027/28. Any remitted ‘designated amounts’ will not otherwise by charged to UK tax. The TRF will be available provided the individual is UK resident in the relevant tax years.

From 6 April 2025, the protection from tax on FIG arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for and claim the 4-year FIG regime. 

FIG arising in the trust (whenever established) from 6 April 2025 will be taxed on the settlor on the same basis as UK domiciled settlors, unless the settlor is eligible for and claims the 4-year FIG regime.

From 6 April 2025, the matching of pre-6 April 2025 FIG to trust distributions will continue to apply for individuals who are not eligible for the 4-year FIG regime, or who are eligible for the 4-year FIG regime but do not claim it.

From 6 April 2025, beneficiaries and settlors who are within the 4-year FIG regime will also be able to receive benefits free from any UK tax charges whether or not the benefits are received in the UK. However, such benefits will not reduce the pools of unmatched FIG within the overseas entity for matching purposes and will be subject to a modified onwards gift rule and close family member rule.

The test for whether non-UK assets are in scope for IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises. The time the individual remains in scope after leaving the UK will be shortened, from the previously proposed 10 years, where they have only been resident in the UK for between 10 and 19 years. 

Subject to transitional points, the excluded property status of non-UK settled assets will not be fixed at the time the assets are added to a settlement. Instead, they will only be excluded property (and so not subject to IHT charges) at times when the settlor is not long-term resident. When a settlor is long-term resident, any assets they have settled (even when not long-term resident) will be subject to IHT.

Therefore, it will no longer be possible for a long-term UK resident individual to shelter foreign assets from the scope of UK IHT by settling them into an offshore trust prior to becoming long term resident (previously UK deemed domiciled). 

It was rumoured that this proposal might be removed or softened because those particularly affected by this are high and ultra-high net worth individuals who built up significant overseas wealth prior to moving to the UK. There is evidence that these individuals may be actively seeking to leave the UK, to avoid paying 40% IHT on their worldwide assets.

Alternative Solutions to the UK

With the abolishment of the UK RND Tax Regime the question for alternative options for foreign nationals arises. There are several countries in and outside the EU, which also offer advantageous tax conditions. In the following paragraphs, the tax conditions for the examples Switzerland, United Arab Emirates and Cyprus will be examined.

Switzerland Offers Favorable Tax Conditions to Wealthy Foreign Nationals

The so-called «lump-sum taxation» (also known as the «forfeit taxation») enables foreign nationals living in Switzerland to pay an expense-based tax instead of full taxes. It is available in most cantons with the exception of Zurich, Basel-Stadt, Basel-Land, Schaffhausen and Appenzell Ausserrhoden.

Key criteria for eligibility for «lump-sum tax» include:

• Person doesn’t have Swiss citizenship and has not lived in Switzerland in the last 10 years
• There can be no Swiss source of income and no gainful activity in Switzerland
• There is a minimum taxable basis, which is calculated based on the expenses (such as rent or property cost, living expenses) and set by the canton of residence
• Approval by local authorities is required
• Spouses do have to fulfill the same requirements

The advantages of this tax are that foreigners profit from a simplified tax assessment and potential lower tax rates. Instead of paying taxes for their foreign income, they are taxed on a multiple of their annual living expenses. This is also known as the «forfeit fiscal».

The United Arab Emirates (UAE) Offer an Attractive Tax System for Individuals and Companies Outside the EU

As an example of a favorable tax system outside the EU, the United Arab Emirates has become a prime destination for people looking to relocate. The UAE is known as a blooming financial stronghold with burgeoning financial services and an extensive tax treaty network. 

Key criteria for eligibility include:

• A person must spend at least 183 days a year in the UAE and have their primary residency in the UAE
• In some cases, tax residency certificates are required

Tax Benefits of the UAE include for example

• No Personal Income Tax and No Inheritance or Gift Tax
• Low Corporate Tax Rate: A federal corporate tax rate of 9% applies only to business profits exceeding AED 375,000, with no tax on profits below this threshold. This is one of the lowest corporate tax rates globally
• No Capital Gains Tax: There is no capital gains tax on investments
• Broad Network of Double Tax Treaties (DTTs)
• Free Zones Incentives: Businesses operating in designated free zones benefit from exemptions on corporate taxes, customs duties, and other levies

Because of those reasons, the UAE's tax system remains highly favorable for individuals and many businesses due to its lack of personal income tax and low overall rates.

Cyprus Non-Domiciled Tax Regime (Cyprus RND)

As an alternative to the UK RND, Cyprus also offers its own version of the non-dom regime, with distinct criteria and benefits. This regime is particularly appealing for individuals relocating within the European Union or seeking investment opportunities in the region. Especially now, with the abolition of the UK non-dom regime, Cyprus offers an attractive alternative for international residents impacted by the changes in the UK.

For an individual to be considered non-domiciled tax resident in Cyprus, certain conditions must be met:

• Stay Requirement: Individuals must spend at least 183 days in Cyprus over a year. Alternatively subject to special conditions being met, the individual can spend 60 days a year in Cyprus.
• Employment: While employment is not mandatory, certain requirements must be met.
• Residency: The individual cannot be a tax resident in any other country in the same tax year. The individual should not spend more than 183 days in any other country.
• Domicile: Under current rules, the individual is considered non-domiciled in Cyprus for 17 tax years.

Any individual relocating to Cyprus would benefit from:

• Taxed on worldwide income: Individuals are taxed on their global income.
• 50 % discount on Cyprus income tax: A significant relief for high-earning individuals.
• Exemptions from Cyprus income tax for specific income types: rental, interest and dividend income are exempt. 
• Zero inheritance and gift tax: No inheritance and gift taxes, allowing for efficient estate planning.

For those considering relocating to Cyprus to profit from the non-dom regime, understanding the immigration requirements is critical:

• EU nationals enjoy free movement and can register as residents without additional hurdles. 
• Non-EU/UK individuals must secure an investors’ permit or employment-based visa, with family members eligible for tag-along rights.

Other Destinations with Special Tax Regimes

Next to the three solutions presented in this article, there are various other destinations with favorable tax conditions for people or companies looking to relocate.
 
Italy, for example, is also a popular destination for foreign nationals, due to its lump-sum regime. The Italian lump sum regime opts for a flat annual tax of EURO 200’000 as well as an exemption on certain capital gains.

Greece also offers a non-dom regime similar to Italy’s. In order to qualify for it, the individual must have been a tax reside outside of Greece for seven of the last 8 years and have to invest a defined minimum amount (EURO 500’000) into Greek real estate, bonds or stocks.  

Implications of the Abolition of the UK RND Tax Regime

The abolishment of the UK RND Tax Regime poses new challenges, but there is a number of alternative countries with favorable tax conditions inside as well as outside of the EU. 

Especially UK residents, which are impacted by the transition from the former UK RND tax rules to the new regime should consider if they would benefit by a relocation to another country. These might offer a pathway to managing their international income while maintaining tax efficiency.

While consulting with professional advisors is essential when navigating such complex regulations, understanding the basics of each regime can empower individuals to make informed decisions about their financial future.