Expat Tax Wrap: A New Era for Returning Expats

Published: September 8, 2025

A residence-based system for inheritance tax (IHT)

Following the Autumn Budget, Rachel Reeves unveiled a suite of measures affecting returning expats, notably the introduction of a foreign income and gains regime. For qualifying individuals, this offers 100 per cent relief on foreign income and gains during the first four years of UK tax residence—a welcome reprieve for those hesitant to repatriate assets.

Reeves also announced a residence-based system for inheritance tax (IHT), which clarifies the scope of property brought into the UK IHT net for both individuals and settlements. Under the old rules, many expats remained potentially UK-domiciled despite years abroad, creating uncertainty over estate planning. The new system, by contrast, allows many to confirm non-long-term resident (non-LTR) status, potentially encouraging the re-establishment of UK ties previously abandoned.

Andrew Gibson, regional director at ARIA’s Javea office, notes that the reforms open doors for lifetime estate planning. “Non-LTR expats can make lifetime gifts to individuals or trusts without these being treated as potentially exempt transfers or chargeable lifetime transfers,” he observes. “Their non-UK assets remain excluded from IHT unless they revert to LTR status.” The clarity extends to residence planning: while the Statutory Residence Test (SRT) still demands careful attention, expats can more confidently determine how much time they may spend in the UK and which assets they may hold without triggering UK tax residency.

Gibson flags a potential complication: spouses may not share matching residence statuses, as aligning domiciles is simpler than navigating the formulaic SRT. This could increase reliance on LTR elections, which, under current draft legislation, are irrevocable on death or lapse only after ten years. Coordinated planning, he suggests, is crucial to preserve spousal exemptions and ensure succession plans remain robust.

On the non-dom front, the government has scrapped the existing regime in favour of a simpler residence-based system. Initial proposals prompted concern that high-net-worth individuals (HNWIs) would depart, draining the Treasury of tax revenues. Reeves appears to have moderated the reforms: the temporary repatriation facility has been extended to three years, allowing foreign income and gains accrued before April 2025 to be brought into the UK at a reduced 12 per cent tax rate in 2025-26 and 2026-27, rather than the 45 per cent maximum.

“For non-doms intending to remain, assets should be “onshored” proactively, lest they incur full UK taxation in coming years. Coordination between UK and offshore advisers is essential to evaluate structural changes and optimise outcomes.”

Yet exodus pressures persist. Andrew Ryan, from ARIA’s Dubai office, points out that many ultra-HNW non-doms have already left, comparing future UK tax liabilities against the inconvenience of fundamentally overhaul of domestic arrangements work, school, and home. Where more favourable jurisdictions exist, inertia is rarely sufficient to retain them.

Advisers are now tasked with strategic engagement. Ryan recommends reviewing past remittances and exploring opportunities such as capital gains rebasing, the foreign income and gains exemption (FIG), and the Temporary Repatriation Facility. For non-doms intending to remain, assets should be “onshored” proactively, lest they incur full UK taxation in coming years. Coordination between UK and offshore advisers is essential to evaluate structural changes and optimise outcomes.

For clients navigating these reforms, there is finally some clarity — and with it the ability to act. Do not hesitate to reach out to us, if you have assets overseas, or with intentions to return, to find out how to best minimise the potential tax burden.

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