As of April 2025, the UK has abolished the non-domicile tax regime and introduced a residency-based system. Anyone living in the UK for more than 182 days is now taxed on their worldwide income and assets. The remittance basis is only available for the first four years of UK residency. The Statutory Residency Test and ties to the UK help determine tax residency, even if you’re abroad. UK tax residents are liable for a 40% inheritance tax on global assets.
How It Affects You
UK tax residents must report all worldwide income—interest, shares, pensions, property, insurance, and inheritance—on their tax return, even if tax has already been paid abroad. If there’s a double taxation treaty, relief can be claimed, but any tax difference must be paid in the UK. Failing to declare foreign income can lead to amendments, penalties, and HMRC scrutiny. Nudge letters from HMRC can result in a 30% penalty plus interest and taxes.
What You Should Do
Declare foreign income promptly and claim all reliefs. Use tax planning strategies like gifting, property trusts, and discounted remittance rates (12%). Plan your foreign income and assets early to reduce exposure to the 40% inheritance tax and avoid future penalties and tax liabilities.
UK tax on worldwide income and assets
April 2025 UK tax changes overview:
- Since April 2025, the non-domicile tax system has been abolished.
- A new residency-based tax system is in place.
- If you live in the UK for more than 182 days, you are liable for your worldwide income and assets.
- Remittance basis is now applicable only first 4 years of Uk residency
- The UK Residency Test determines whether you are a UK tax resident or not.
- Even if you are outside the UK, UK ties will decide your residency.
- As a UK tax resident, you are liable for UK inheritance tax at a rate of 40%, which includes your worldwide assets.
How does it affect you – UK worldwide income disclosure
- UK tax residents must declare worldwide income while completing their UK tax return.
- For example, if you have interest income of £5,000 in another country and have paid the local tax:
- You might think that since you have already paid tax in that country, you don’t need to do anything in the UK. This is incorrect.
- You need to declare the same income through your UK tax return.
This will impact all your foreign income, including interest, share trading, life insurance, pension, property sales, and inheritance property.
If the UK has a double taxation agreement with the income-generating country, the UK tax resident can claim tax relief for the tax already paid.
If there is any tax difference required, you need to pay that tax in the UK.
If your tax return is incomplete, you will need to amend it later and may incur penalties, interest, and additional tax.
If HMRC finds out and sends you a nudge letter, you will face a minimum 30% penalty on top of interest and tax payment.
What is the solution
- Declare foreign income on time and claim all available reliefs.
- Tax planning is crucial; utilize opportunities such as gift rules . will trust and property trusts.
- If HMRC traces your foreign income in later years, you may incur penalties, taxes, and interest.
- If you are already on the remittance basis, use the discounted rate of 12% immediately.
- Plan your foreign income and assets to protect against the 40% UK inheritance tax.
