UK residents with Indian domicile now face tax on overseas income

If you are a UK resident and have a domicile in India, you will now have to pay tax on your foreign income. The UK has brought in new tax rules from April 6, 2025, changing how foreign income is treated for residents with overseas ties. The previous system that allowed UK residents to avoid tax on foreign income under the remittance basis has ended.

 

Until now, residents who were not UK-domiciled didn’t have to pay tax on income earned abroad unless they brought it into the UK. But the system has shifted from one based on “domicile” to one based on “residence”, meaning where you live now determines your tax liability—irrespective of your permanent home.

   

“For the Indians, who are UK residents, who haven’t become deemed-domiciled could choose to be taxed on the remittance basis. This means that while they pay tax on their UK income and gains in the same way as other UK residents, they only pay tax on their foreign income and gains (FIG) when these are remitted to the UK,” Rajarshi Dasgupta, executive director — tax, AQUILAW told Business Standard.

 

How Indians in the UK will be affected

 

From April 6, 2025:

— All newly arising foreign income and gains will be taxed in the UK for all residents, regardless of domicile

— Individuals will no longer be able to use the remittance basis

— Tax will apply to global income, including earnings from property, dividends and business in India

 

“The abolition of the non-dom regime significantly impacts Indian UK residents by transitioning from domicile-based to residence-based taxation,” said Ketan Mukhija, senior partner, Burgeon Law.

 

“Under the new rules, individuals will enjoy a four-year tax exemption on foreign income and gains, but from the fifth year onward, they'll face UK taxation on worldwide income including Indian sources like rental income and dividends at rates up to 45%, potentially increasing their tax liability on Indian earnings such as business profits, investments, and property income,” Mukhija told Business Standard.

 

He added, “This change necessitates careful financial planning to avoid double taxation and to optimise cross-border tax compliance, especially for high-net-worth individuals with substantial assets in India.”

 

The four-year grace period

 

There will be 100% relief on foreign income and gains for new arrivals who have not been UK tax resident in the 10 years prior to arrival. This four-year exemption applies only once and cannot be renewed. After this period, normal taxation rules will apply.

 

Those who were previously on the remittance basis and are not eligible for the four-year exemption will now be taxed in full on foreign income earned from April 6, 2025. They will still be taxed on any foreign income and gains earned before that date if those are brought into the UK.

 

Trusts, asset rebasing, and repatriation options

 

— Trusts that used to offer protection from UK tax will no longer benefit from exemptions unless the individual qualifies for the four-year regime

— Foreign assets held as of April 5, 2017, can be “rebased” for Capital Gains Tax purposes, meaning their value at that date can be used for tax calculation when sold

— Foreign income and gains earned before April 6, 2025, can still be taxed on remittance if brought into the UK

 

A Temporary Repatriation Facility will be available for three years starting in 2025, allowing these older foreign earnings to be brought into the UK at lower tax rates:

— 12% for the first two years

— 15% in the third year

 

This includes previously unattributed foreign income held within trust structures.

 

Changes to inheritance tax rules

 

The domicile-based inheritance tax system is also being replaced. Now, UK tax will apply based on residency status:

— If a person has been a UK resident for at least 10 of the last 20 tax years, they will be subject to UK inheritance tax

— This exposure can continue for up to 10 years after leaving the UK

— Foreign assets placed in trusts may also be brought under inheritance tax once the settlor becomes a long-term UK resident

 

Other rule changes from April 6, 2025

 

— The Overseas Workday Relief (OWR) period will now align with the four-year foreign income exemption window

— OWR will be capped at the lower of £300,000 or 30% of total employment income

— The exemption for travel costs paid by employers to bring non-domiciled employees to the UK will be reduced to four years

— Income earned abroad by UK residents will be taxable unless the individual qualifies for OWR

 

Other countries also have such rules.

 

Italy has a similar “non-dom” scheme in place since 2017. New residents can pay a flat €100,000 per year on foreign income, regardless of actual earnings. This can last for up to 15 years. However, there is growing pressure from the European Commission to limit such regimes due to concerns about tax avoidance.

 

In Ireland, remittance-based taxation still exists for non-domiciled residents, but there are increasing calls to bring that in line with residence-based systems following the UK’s shift.

 

Why are countries changing these rules?

 

“The UK’s shift from domicile-based to residence-based taxation reflects a broader effort to modernise its tax system, enhance fairness, and simplify compliance. The domicile framework, rooted in historical distinctions, often allowed wealthy individuals to avoid taxation on foreign income and gains, creating perceived inequities. By focusing on residence, the government aims to establish a uniform tax regime that applies equally to all UK residents, regardless of their origin or inherited domicile status. This change aligns with global trends toward transparency and fairness in taxation while addressing criticisms of the non-dom system as outdated and overly complex,” Mukhija explained.