UK Residents with Indian Domicile Now Taxed on Overseas Income

The UK tax landscape is undergoing a landmark shift starting April 6, 2025, as the government abolishes the long-standing non-domicile (non-dom) tax regime. From this date onward, taxation will be determined by residency status rather than domicile, dramatically impacting Indian-origin individuals living in the UK. This transformation is particularly relevant to those with significant foreign income or overseas assets, such as property, business profits, or investments in India.

Key Highlights of the 2025 UK Tax Reform

The new rules dismantle the previous framework, which allowed residents to opt for the remittance basis—paying UK tax only on foreign income brought into the country. From April 2025, the UK tax system will shift entirely to a residence-based taxation model.

Here’s an overview of how the changes affect Indian-origin UK residents:

Aspect	Before April 2025	After April 2025
Taxation Model	Domicile-based	Residence-based
Remittance Basis	Available	Eliminated
Global Income Taxation	Only on remitted income	Taxed in full for residents
Trust Protections	Exemptions for non-doms	Limited or removed
Four-Year Tax Exemption	Not standard	Introduced for new residents

Four-Year Foreign Income Exemption: Who Qualifies?

Under the revised framework, individuals who move to the UK and haven’t been UK tax residents for the previous 10 tax years will enjoy a four-year exemption from UK tax on foreign income and gains. This period allows them to retain tax-free status on overseas earnings, providing critical breathing space for financial planning.

• This relief applies once in a lifetime and is non-renewable.
• After four years, all foreign earnings will become fully taxable in the UK.
• This benefit is not retroactively available to existing residents.

Impacts on Indian-Origin UK Residents

As explained by legal experts such as Ketan Mukhija, Senior Partner at Burgeon Law, Indian residents in the UK who previously relied on the remittance basis will now face taxation on all global income, including:

• Rental income from Indian properties
• Dividends from Indian stocks
• Business profits or professional income sourced in India

High-net-worth individuals with diversified overseas portfolios may see their tax liabilities increase significantly—up to 45% on certain income brackets.

Asset Rebasing & Temporary Repatriation Facility

To assist with the transition, the UK has introduced some mitigating provisions:

Rebasing of Foreign Assets

• Foreign-held assets acquired before April 5, 2017, can be rebased to that date’s market value for Capital Gains Tax (CGT) purposes.

Temporary Repatriation Facility (TRF): 2025 to 2028

• Enables individuals to bring previously untaxed foreign earnings into the UK at reduced rates:
  • 12% tax in 2025 and 2026
  • 15% tax in 2027
• This applies to previously sheltered income, including that held in offshore trusts.

Trust and Inheritance Tax Modifications

Trusts that were historically used to shield foreign income will no longer offer broad exemptions unless the settlor qualifies for the four-year exemption. Additionally, inheritance tax (IHT) rules are also being overhauled:

• UK IHT now applies based on residency rather than domicile.
• Anyone who has been a UK resident for 10 of the last 20 years falls under IHT liability.
• The tax exposure can persist for up to 10 years after leaving the UK.
• Foreign assets within trusts may be exposed once the settlor becomes a long-term resident.

Overseas Workday Relief (OWR) Aligned with New Exemptions

The OWR—designed to ease tax burdens for expatriates—will also change:

• The relief will now align with the four-year exemption window.
• Caps introduced: £300,000 or 30% of total employment income, whichever is lower.
• Employer-paid relocation travel cost exemptions will also be limited to four years.

A Global Shift Toward Residency-Based Taxation

Other countries are already embracing similar models:

• Italy offers a fixed €100,000 annual tax on global income for 15 years.
• Ireland still allows the remittance basis but is under pressure to reform.

These changes reflect a global movement towards transparency, reducing tax avoidance by removing historical domicile-related loopholes.

Conclusion

The UK’s shift from domicile-based to residence-based taxation marks a significant evolution in its fiscal policy. Indian-origin residents, especially those with substantial overseas income or trust arrangements, must act proactively. With limited transition reliefs, timely tax planning and cross-border compliance will be essential to mitigate financial risk.

As April 2025 approaches, individuals are strongly advised to consult tax advisors to re-evaluate their estate plans, repatriation strategies, and investment structures.

FAQs

What is the main change in UK taxation from April 2025?

The UK will switch from a domicile-based to a residence-based taxation system, taxing residents on all global income regardless of domicile status.

Who qualifies for the four-year tax exemption?

New UK residents who haven’t lived in the UK for 10 of the previous 10 tax years qualify for a one-time, four-year exemption from tax on foreign income and gains.

How will Indian income be treated under the new rules?

From April 6, 2025, all foreign income, including rental income, business profits, and dividends from India, will be taxed in the UK if the individual is a UK resident.

What is the Temporary Repatriation Facility?

A transitional provision allowing individuals to bring past foreign income into the UK at reduced tax rates—12% in the first two years, and 15% in the third year.

Are trusts still tax-efficient under the new system?

Not necessarily. Most protections previously available through trusts will be curtailed unless the individual qualifies for the four-year exemption.

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