UK Non-Dom Tax Reforms

The long-established non-domicile system allows individuals who live in the UK but are domiciled elsewhere for tax purposes to avoid paying UK tax on overseas income and capital gains for up to 15 years.

However, during the October budget, the government announced that the regime would be abolished from 5 April 2025, making long term residents liable for inheritance tax on their global assets, including those held in trusts.

Since then, Chancellor Rachel Reeves revealed that an amendment to the Finance Bill would be introduced to improve the temporary repatriation facility (TRF). This scheme enables non-doms to transfer funds to the UK at a reduced tax rate of 12% for both individuals and now trusts.

Overseas investors were also reassured by Reeves that the UK’s double taxation agreements would remain unchanged. A Treasury spokesperson confirmed that the government aims to encourage non-doms to transfer their funds to the UK to stimulate investment and spending.

The October Budget’s non-dom crackdown was part of a broader set of policies aimed at high net-worth individuals, including increased taxation on private equity executives, private schools, second homes, and private jets. Critics warned at the time that such measures could lead to an exit of wealthy individuals, potentially undermining investment and economic growth.

Temporary Repatriation Facility (TRF)

As mentioned above, an amendment to the Finance Bill would be introduced to improve the temporary repatriation facility (TRF) which will enable non-domiciles to transfer funds to the UK at a reduced tax rate of 12%.

Most eligible HNW taxpayers will wish to make full use of the temporary repatriation facility and will welcome the news that the scheme is to be enhanced further.

James Austen, tax partner at Collyer Bristow, noted that “The government’s proposed amendment to the Finance Bill is not a significant change to its plans, and many of the concerns about the new regime, particular in relation to trusts and IHT, remain. I don’t expect this will ‘move the dial’ for most non-doms,” he added.

Matthew Braitwaite, head of Wedlake Bell’s private client offshore team, shared similar sentiments, stating, “The TRF is welcome news to the non-dom community still in the UK who may now stay a while longer, although this may only delay but not prevent their plans to leave, and for others it may be too little too late”.

Taxation of carried interest in the UK

There will be no change to UK taxation of carried interest proceeds received in the year ended 5th April 2025. The 2025/26 tax year will be a transition year, with a tax rate increase from 28% to 32% for carried interest capital gains. Other than this, there are no changes to current UK rules for taxation of carried interest.

From 6th April 2026, more significant changes to UK taxation of carried interest are set to be effective and to affect all carried interest proceeds received on or after 6th April 2026.

What changes to carried interest taxation are proposed from 6th April 2026?

• Carried interest proceeds – taxed as trading income of individual receiving the carried interest. Income tax and self-employed (Class 4) national insurance will apply.
• Default rule – carried interest subject to tax at the recipient’s marginal rate of income tax and Class 4 national insurance.

The current marginal rate for income tax and Class 4 national insurance for additional rate taxpayers is 45% and 2%, respectively, this means the default tax rate for carried interest proceeds from 6th April 2026 will be 47% for additional rate taxpayers.

Qualifying carried interest

A special rate will apply to carried interest which is “qualifying carried interest”, which is stated to be 72.5% of the current rates.

E.g. this special rate will be 34.075% for additional rate taxpayers, i.e. 47% multiplied by 72.5%.

In order to be “qualifying carried interest” to which this 72.5% multiplier applies:

• Carried interest must fall within the existing definition of carried interest within “disguised investment management fee” (DIMF) rules;
• Carried interest must not be treated as “income based carried interest” (IBCI)

Whilst 2025/26 rules that we have detailed above seem to be confirmed, there was a consultation on the changes that apply from 6th April 2026, which ended recently on 31st January 2025, therefore, there may be further revisions to changes of carried interest taxation from 6th April 2026.

Please contact our team for further information.