Introduction
On 6 April 2025, the United Kingdom formally abolished the remittance basis of taxation for individuals domiciled outside the United Kingdom—the so-called “non-dom” regime—replacing it with a new residence-based Foreign Income and Gains (FIG) scheme under the Finance Act 2025. The political narrative driving this reform was explicitly one of fairness: the Chancellor announced in the October 2024 Budget that it was no longer acceptable for individuals who lived, worked, and benefited from UK public services to shield offshore income from UK taxation indefinitely on the basis of a domicile status inherited from a parent (HM Treasury, 2024). The thesis of this essay is that while the abolition of the remittance basis has removed one conspicuous source of horizontal inequity—namely, the capacity of long-term UK residents to pay significantly less tax than comparably situated residents—it has not, on close analysis, produced a genuinely fair residence-based system. Three structural defects persist. First, the replacement four-year FIG regime creates a new, albeit time-limited, category of preferential treatment that still offends the principle that residents with equal ability to pay should bear equal tax burdens. Second, the transitional provisions—particularly the Temporary Repatriation Facility (TRF) and the rebasing of capital gains—confer windfall advantages on existing wealth holders that are difficult to justify on equity grounds. Third, the reformed inheritance tax rules, which substitute a domicile test with a long-term residence test, introduce fresh complexity and planning opportunities that may reproduce some of the distributional effects the reform was intended to eliminate. The abolition is, accordingly, a significant improvement over the prior regime, but it falls short of the principled fairness that a mature residence-based system demands.
The Concept of Fairness in Residence-Based Taxation
Before evaluating the reform, it is necessary to define the evaluative standard. “Fairness” in taxation is not a unitary concept; it encompasses at least two widely recognised dimensions. Horizontal equity requires that taxpayers in materially similar circumstances bear similar tax burdens (Musgrave, 1959). Vertical equity demands that those with greater ability to pay contribute proportionately or progressively more (Adam and Miller, 2021). A residence-based tax system, in which the state taxes the worldwide income and gains of all persons who reside within its territory, broadly satisfies horizontal equity by ensuring that all residents are taxed on the same base, regardless of the geographic source of their income (OECD, 2024). The previous UK system departed from this norm because non-domiciled residents could elect to be taxed on the remittance basis, paying UK tax on their foreign income and gains only when those sums were brought into the United Kingdom. This created a systematic divergence: two individuals living side by side in London, earning identical global incomes, could face radically different effective tax rates depending solely on whether one had a foreign domicile of origin. The Mirrlees Review (2011) identified this as a significant horizontal inequity, noting that the remittance basis operated as an elective privilege rather than a principled feature of the tax base.
Fairness also has a procedural dimension: tax rules should be transparent, predictable, and not unduly susceptible to manipulation by well-advised taxpayers (Fuller, 1969; Freedman, 2007). A system that formally applies universal rules but in practice permits avoidance through complex structuring may be formally fair but substantively inequitable. This procedural lens is important when evaluating the transitional and inheritance tax provisions of the 2025 reforms, which—as will be argued—create significant planning opportunities that principally benefit high-wealth individuals with access to specialist advice.
The Pre-Reform Remittance Basis: A System Structurally at Odds with Fairness
The remittance basis had deep historical roots. Domicile as a connecting factor for UK taxation was established in the Income Tax Act 1799 and persisted, through various statutory iterations, into the modern code. Under the Income Tax Act 2007, sections 809A–809Z10, and the Taxation of Chargeable Gains Act 1992, section 12, non-domiciled individuals who were UK resident could claim the remittance basis, thereby excluding unremitted foreign income and gains from the UK tax charge. From 2008, a Remittance Basis Charge (RBC) was introduced—initially £30,000 for those resident for seven of the previous nine tax years, rising to £60,000 after twelve years—but this charge was modest relative to the tax savings available to individuals with substantial offshore wealth (HMRC, 2024a). The Office for Budget Responsibility estimated in 2024 that approximately 68,800 individuals claimed non-dom status, and that they contributed £8.9 billion in UK taxes—a significant sum, but one that reflected only the portion of their income that was either UK-sourced or voluntarily remitted (OBR, 2024).
The unfairness of the remittance basis was not merely theoretical. It had tangible distributional consequences. Research by Advani, Chamberlain, and Summers (2020) demonstrated that the non-dom population was concentrated in the top percentiles of the income distribution and that the remittance basis disproportionately benefited individuals whose offshore income consisted of investment returns, trust distributions, and capital gains—forms of income that are particularly easy to retain outside the UK. The regime thus operated as a preferential tax treatment for mobile capital, while domestically domiciled taxpayers with similar income levels bore the full worldwide tax burden. This disparity was difficult to justify on any standard account of horizontal equity.
Moreover, the domicile concept itself was widely criticised as anachronistic and opaque. Domicile of origin, acquired at birth from the father (or mother, if born outside marriage), was extraordinarily difficult to displace; the common law required proof of a settled intention to reside permanently or indefinitely in a new country (Udny v Udny (1869) LR 1 HL 441; IRC v Bullock [1976] 1 WLR 1178). This meant that individuals who had lived in the UK for decades could retain a foreign domicile—and thus access the remittance basis—provided they maintained a sufficient connection to their domicile of origin or at least had not formed the requisite permanent intention towards England and Wales. The concept was, as the Law Commission observed in its 1987 report, uncertain, artificial, and prone to retrospective manipulation (Law Commission, 1987). The deemed domicile rules introduced by Finance (No. 2) Act 2017, which treated individuals as UK-domiciled for income tax, capital gains tax, and inheritance tax purposes after fifteen years of UK residence, mitigated but did not eliminate this problem, since the fifteen-year period still permitted over a decade of preferential treatment.
The Finance Act 2025 Reforms: Architecture of the New Regime
The Finance Act 2025 abolished the remittance basis for income tax and capital gains tax from 6 April 2025. In its place, the Act introduced a four-year Foreign Income and Gains (FIG) regime. Under this new regime, individuals who become UK tax resident after a period of at least ten consecutive tax years of non-UK residence may elect, for each of their first four tax years of UK residence, not to pay UK tax on their foreign income and foreign chargeable gains arising in that year (HMRC, 2025a). During the four-year FIG period, qualifying individuals pay no UK tax on foreign income and gains, regardless of whether those sums are remitted to the UK. After the four-year period expires, the individual is taxed on worldwide income and gains on the arising basis, like any other UK resident.
The reforms also introduced several transitional measures for individuals who were previously claiming the remittance basis. These include: (i) a Temporary Repatriation Facility (TRF), under which pre-6 April 2025 foreign income and gains that were previously unremitted can be brought into the UK at a reduced rate of 12% for the tax years 2025–26 and 2026–27, rising to 15% in 2027–28 (HMRC, 2025b); (ii) a rebasing of foreign assets for capital gains tax purposes, so that individuals who held assets on 5 April 2017 and who were taxed on the remittance basis for the tax year 2024–25 may elect to rebase those assets to their market value on 5 April 2017 when calculating future gains; and (iii) the abolition of the domicile-based connecting factor for inheritance tax (IHT), replacing it with a long-term residence test under which individuals become liable to UK IHT on their worldwide estate after ten years of UK residence, with a corresponding ten-year “tail” of IHT liability after departure from the UK (HM Treasury, 2024; Finance Act 2025).
The Four-Year FIG Regime: A New, Time-Limited Privilege
The replacement of the indefinite remittance basis with a four-year exemption for new arrivals is, on one view, a principled concession to international tax competition. The UK is not the only jurisdiction to offer preferential treatment to incoming residents: Italy offers a €100,000 flat tax on foreign income for new residents (Italian Budget Law 2017, as amended 2024); Portugal operated a Non-Habitual Resident regime until its abolition in 2024; and several other European states maintain similar regimes (Kleven et al., 2014). The policy rationale is that a time-limited incentive attracts mobile talent and capital without creating the permanent inequity that the old remittance basis entailed.
Nevertheless, the four-year FIG regime creates a clear horizontal inequity during the relief period. An individual who moves to the UK with substantial offshore investment portfolios will, for four years, pay no UK tax on the returns generated by those portfolios, while a UK-born resident with identical domestic investment income will be taxed at rates up to 45%. This disparity cannot be fully justified by the “incentive” rationale, because the relief is not targeted at productive economic activity—it applies equally to passive investment income, trust distributions, and speculative gains. As Devereux and Vella (2024) observe, a well-designed incentive for attracting mobile talent would focus on earned income or entrepreneurial activity, not on exempting all categories of foreign income regardless of their economic character. The FIG regime is thus a blunt instrument that, while narrower than the remittance basis, still offends horizontal equity during its operative period.
Furthermore, the four-year regime introduces a cliff-edge problem. On the first day of the fifth year of UK residence, the arriving individual transitions from paying zero UK tax on foreign income and gains to paying tax at full marginal rates on the arising basis. This creates a powerful incentive to time the realisation of gains and the receipt of income within the four-year window, or to leave the UK before the window closes. While such behavioural responses are inherent in any time-limited relief, they are particularly acute here because the transition is from complete exemption to full taxation, with no tapering. The OBR’s costings assume a degree of behavioural response, including some individuals curtailing their UK residence (OBR, 2024), which suggests that the regime may not achieve the revenue gains anticipated if mobility responses are significant. The absence of tapering or a graduated phase-in undermines the claim that the new system achieves a smooth and equitable integration of new residents into the tax base.
Transitional Provisions: Windfall Benefits for Existing Wealth Holders
The Temporary Repatriation Facility
The TRF permits former remittance-basis users to bring previously unremitted foreign income and gains into the UK at a flat rate of 12% (2025–26 and 2026–27) or 15% (2027–28), compared with the normal marginal rates of up to 45% for income and up to 24% for capital gains. The policy justification for the TRF is pragmatic: without a reduced-rate facility, former non-doms might never remit their offshore funds, depriving the UK of both tax revenue and economic investment (HM Treasury, 2024). This argument has force, but it does not answer the fairness objection. An individual who accumulated £10 million in offshore investment income over twenty years of remittance-basis use can now bring that sum into the UK at an effective rate of 12%, whereas a UK-domiciled taxpayer who earned and saved an equivalent sum from domestic sources will have paid marginal rates of income tax and capital gains tax throughout. The TRF thus crystallises the distributional advantage conferred by the old regime rather than unwinding it.
Advani and Summers (2025) have argued that the TRF is regressive in effect, since the largest pools of unremitted income and gains are concentrated among the wealthiest former non-doms, and the flat-rate charge is proportionately more favourable to high-income individuals than to moderate-income taxpayers. A fairer transitional mechanism might have imposed a graduated rate, or could have applied a rate closer to the normal marginal rate with a longer payment window to ease cash-flow constraints. The choice of a flat 12% rate—well below even the basic rate of income tax—appears to reflect a political compromise aimed at discouraging capital flight rather than an equity-driven design.
Rebasing of Capital Assets
The rebasing election is similarly problematic from an equity perspective. By allowing former remittance-basis users to treat their foreign assets as having been acquired at their 5 April 2017 market value, the reform effectively exempts all pre-2017 accrued gains from UK capital gains tax. For individuals who acquired assets at low cost decades ago—for example, shareholdings in family businesses or early-stage investments—the exempted gains may be very substantial. A UK-domiciled taxpayer who held identical assets throughout the same period would be taxed on the full gain from the original acquisition cost. The choice of 5 April 2017 as the rebasing date appears to correspond to the introduction of the deemed domicile rules under Finance (No. 2) Act 2017, but there is no principled reason why gains accruing between the original acquisition and that date should be permanently exempt. As Loutzenhiser and de Souza (2024) note, the rebasing concession effectively locks in the benefit of the old regime for the most capital-rich former non-doms.
Inheritance Tax: From Domicile to Long-Term Residence
The replacement of domicile with a long-term residence test for IHT purposes is, in principle, a welcome simplification. The old domicile-based IHT rules were among the most manipulated provisions in the UK tax code. Non-domiciled individuals could hold foreign assets in excluded property trusts, which were entirely outside the scope of UK IHT regardless of how long the settlor had lived in the UK, provided the trust was established before the settlor became deemed domiciled (Inheritance Tax Act 1984, section 48(3), as it stood prior to amendment). The 2025 reforms bring foreign assets within the scope of IHT for individuals who have been UK resident for ten out of the previous twenty tax years, and impose a ten-year tail of IHT liability after departure (HMRC, 2025c).
However, the new residence-based IHT regime introduces its own complexities and planning opportunities. The ten-year qualifying period is generous by international standards—many jurisdictions impose worldwide estate or inheritance taxation from the first year of residence—and the ten-year tail, while intended to prevent deathbed departures, creates a significant burden for individuals who genuinely emigrate and sever their UK connections. There is also a transitional question concerning existing excluded property trusts. The Finance Act 2025 brings these trusts within the IHT net where the settlor meets the new long-term residence condition, but the detailed anti-avoidance provisions and the interaction with the trust charging regime are highly complex (Chamberlain, 2025). Advisers have already identified planning opportunities involving the restructuring of trust interests before the IHT provisions take full effect, which risks replicating, in a different form, the avoidance behaviour that the old domicile-based rules facilitated.
Furthermore, the ten-year qualifying threshold means that individuals who spend fewer than ten years in the UK will remain entirely outside the scope of IHT on their foreign assets. Given that the four-year FIG regime is aimed at attracting mobile individuals, a significant cohort of incoming residents may leave the UK after four years with both their income and their estates having been largely untouched by UK taxation. The IHT reform is therefore less radical than it appears: it shifts the line of demarcation from domicile to long-term residence, but it does not eliminate the category of UK resident whose foreign wealth is sheltered from the estate tax base.
Competitiveness versus Equity: The Unresolved Tension
Much of the political debate surrounding the abolition of non-dom status has been framed in terms of a trade-off between fairness and international competitiveness. The government’s impact assessment acknowledged that some individuals would leave the UK as a result of the reform, but concluded that the net revenue effect would be positive (HM Treasury, 2024). The OBR’s central estimate projected a revenue gain of approximately £1.2 billion per year by 2028–29, after accounting for behavioural responses (OBR, 2024). Critics, however, have argued that the revenue projections are optimistic and that the departure of high-net-worth individuals will reduce not only tax revenue but also investment, employment, and philanthropic contributions (Adam and Miller, 2021).
From a fairness perspective, the competitiveness argument is not a complete answer. As Murphy (2024) has argued, the claim that the UK must offer tax privileges to attract mobile capital is itself a normative choice: it assumes that the welfare gains from attracting wealthy residents outweigh the distributional costs of treating them more favourably than domestic residents. This assumption is contestable. The empirical evidence on the responsiveness of high-net-worth individuals to tax incentives is mixed. Kleven et al. (2014) found significant mobility effects among top earners in Denmark, but the UK context may differ given the importance of non-tax factors—language, legal system, financial infrastructure, education, and lifestyle—in location decisions. The difficulty is that the government has designed the FIG regime and the transitional provisions with an eye to competitive positioning, and in doing so has accepted a degree of horizontal inequity that sits uncomfortably with the stated objective of a fairer system.
There is, moreover, a vertical equity concern. The beneficiaries of the four-year FIG relief and the transitional provisions are, by definition, individuals with significant foreign income, gains, and assets—that is, the wealthiest residents. The reform thus creates a pattern in which the most affluent newcomers enjoy a period of preferential treatment, followed by full taxation, while less wealthy immigrants who arrive with earned income and no offshore portfolios receive no comparable benefit. This is the inverse of a progressive tax structure. A fairer design might have capped the FIG relief at a monetary threshold, or restricted it to categories of income—such as employment income or active business income—that are more closely linked to productive economic contribution.
Comparative Perspectives: Lessons from Other Jurisdictions
A brief comparison with other jurisdictions underscores the choices embedded in the UK reform. Italy’s flat-tax regime for new residents, introduced in 2017, initially set a flat charge of €100,000 per year on all foreign income, regardless of amount; the rate was doubled to €200,000 in 2024 (Italian Budget Law 2024). This is a lump-sum approach that, while not progressive, at least ensures a minimum contribution from wealthy incomers. France taxes all residents on worldwide income from the first year of residence, with no preferential regime for new arrivals, though it offers a five-year exemption for certain categories of inbound employees under Article 155 B of the Code Général des Impôts. The Netherlands operated a 30% ruling for incoming employees, allowing a flat 30% exemption on employment income for five years, though this was recently curtailed to 27% and then further limited (Belastingdienst, 2024). Each of these regimes reflects a different balance between competitiveness and equity, but none offered the breadth of the UK’s former remittance basis, which was unique in applying to all categories of income and gains with no monetary cap and, prior to the deemed domicile rules, no time limit.
The UK’s FIG regime is closer to the French and Dutch models in that it is time-limited, but it is more generous in that it exempts all foreign income and gains without restriction. A more equitable design might draw on the Italian lump-sum model—requiring a minimum tax contribution—or on the Dutch model’s restriction to employment income. The absence of such refinements in the UK reform suggests that the government prioritised simplicity and attractiveness over distributional precision.
Complexity and the Rule of Law
A further dimension of fairness concerns legal certainty and accessibility. The Finance Act 2025 provisions, together with the accompanying statutory instruments and HMRC guidance, are highly detailed and technically demanding. The interaction between the FIG regime, the TRF, the rebasing rules, the new IHT long-term residence test, the trust provisions, and the existing double taxation agreements creates a compliance landscape that is navigable only with specialist professional advice. This is relevant to fairness because, as Freedman (2007) has argued, complexity in tax law tends to benefit those who can afford expert advisers, while imposing disproportionate compliance burdens on less wealthy or less well-advised taxpayers. The Chartered Institute of Taxation (CIOT) noted in its response to the 2024 consultation that the draft legislation contained significant areas of ambiguity, particularly regarding the treatment of mixed funds, the interaction with settlement provisions, and the application of the TRF to trust distributions (CIOT, 2024). While some complexity is inevitable in any transition from one tax regime to another, the volume and density of the new rules risk undermining the transparency and accessibility that a fair system requires.
In this respect, the reform may have replaced one source of unfairness—the substantive inequity of the remittance basis—with another: the procedural unfairness of a system so complex that its benefits and burdens are unevenly distributed according to access to professional advice. This is not a reason to prefer the old regime, which was at least equally complex, but it is a reason to question whether the new system achieves the standard of fairness that the government claimed.
Evaluating the Reform Against Its Own Standard
The government’s stated objective was to create a system in which “those who make the UK their home contribute to the funding of public services on the same basis as everyone else” (HM Treasury, 2024). Measured against this standard, the reform is only partially successful. The abolition of the indefinite remittance basis is a clear advance: after four years, all UK residents will be taxed on the arising basis, removing the most egregious source of horizontal inequity. The replacement of domicile with residence for IHT purposes eliminates an archaic and manipulable connecting factor. These are genuine improvements.
However, the four-year FIG regime means that new arrivals with foreign income and gains do not, in fact, contribute “on the same basis as everyone else” during their initial period of UK residence. The transitional provisions confer substantial advantages on individuals who benefited from the old regime. The IHT reforms introduce a ten-year threshold that is generous enough to leave significant foreign wealth outside the UK tax net. And the overall complexity of the new system ensures that its benefits will be unevenly distributed according to wealth and access to advice. The reform is thus fairer than the regime it replaced, but it does not achieve the standard of fairness that a principled residence-based system would require.
Conclusion
The abolition of non-dom status under the Finance Act 2025 represents the most significant structural reform of the UK’s international personal tax regime in over two centuries. It removes an anomaly that permitted long-term UK residents to shelter foreign income and gains from taxation indefinitely, and it replaces the opaque and antiquated concept of domicile with a clearer residence-based framework for inheritance tax. To that extent, the reform is a meaningful advance towards horizontal equity.
Yet the reform falls short of creating a genuinely fair residence-based system. The four-year FIG regime introduces a new, time-limited privilege that exempts wealthy incomers from taxation on all foreign income and gains, regardless of character, without any monetary cap or targeting to productive activity. The transitional provisions—the TRF at 12–15% and the rebasing of capital assets to 2017 values—crystallise and entrench the distributional advantages conferred by the old regime rather than unwinding them. The IHT reforms, while welcome in principle, create new complexity and planning opportunities that may reproduce some of the avoidance behaviour that the old domicile-based rules facilitated. And the sheer complexity of the new code ensures that its benefits will accrue disproportionately to those with the resources to navigate it.
The most important reason supporting this conclusion is that the reform was designed not solely to achieve fairness, but to balance fairness against international tax competitiveness. That balance is a legitimate policy objective, but it should be acknowledged honestly. The abolition of non-dom status has not created a system in which all residents contribute on the same basis; it has created a system in which the period and extent of preferential treatment are more tightly constrained than before. That is progress, but it is not yet fairness. A genuinely equitable residence-based system would tax all residents on worldwide income from the first year, subject only to relief for double taxation, with transitional provisions that do not reward prior avoidance. Until Parliament is willing to accept the competitive risks of such a system, the gap between the rhetoric of fairness and the reality of the tax code will persist.
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