Becoming ‘Deemed Domiciled’: A Case Study on the 2026/27 Tax Reforms

For decades, the concept of domicile shaped the UK tax landscape. The “deemed domicile” rules, particularly the 15-out-of-20-year test, dictated the taxation of long-term residents’ global wealth. However, the Finance Act 2025 drastically altered this framework by abolishing the remittance basis and replacing domicile with a strictly residence-based regime for income tax, capital gains tax (CGT), and inheritance tax (IHT).

This blog post provides a comprehensive case study on how these changes affect individuals who previously held or were approaching “deemed domiciled” status, focusing on the 2026/27 tax year.

The Baseline: What Was “Deemed Domicile”?

Before 6 April 2025, section 835BA of the Income Tax Act 2007 (ITA 2007) governed deemed domicile for income tax and CGT. An individual not domiciled in the UK under general law was treated as deemed domiciled if they met one of two conditions:

• Condition A: Born in the UK with a UK domicile of origin and resident in the UK for the relevant tax year.
• Condition B: Resident in the UK for at least 15 of the 20 tax years immediately preceding the relevant tax year.

Historically, individuals approaching their 16th year of residence had to carefully plan for the loss of the remittance basis and the onset of taxation on their worldwide income and gains on an arising basis. The Valesca Valentina Yvette Louwman v HMRC case highlighted the complexities and specific protections for offshore trusts that existed for deemed domiciled individuals under the old rules.

The 2025/26 Overhaul: From Domicile to Residence

The Finance Act 2025 removed domicile as a relevant connecting factor for tax purposes, effective 6 April 2025.  The remittance basis is no longer available.  Instead, the UK government implemented a residence-based regime to ensure long-term residents pay tax on a level playing field.

Income Tax and Capital Gains Tax (CGT)

For income tax and CGT, the remittance basis has been replaced by a 4-year Foreign Income and Gains (FIG) regime.

The 4-Year FIG Regime: New arrivals to the UK receive 100% relief on foreign income and gains for their first 4 years of tax residence.  To qualify, the individual must have been non-UK resident for a period of 10 consecutive tax years immediately prior to their arrival.

This means that individuals who have been resident in the UK for more than 4 years (which inherently includes anyone who was previously “deemed domiciled” under the 15/20 year rule) are fully subject to UK tax on their worldwide income and gains on an arising basis from 6 April 2025.

Inheritance Tax (IHT)

The domicile-based IHT system was also replaced by a residence-based system.

Long-Term Residence for IHT: An individual is considered a “long-term resident” and thus in scope for UK IHT on their worldwide assets when they have been resident in the UK for at least 10 out of the last 20 tax years.

Crucially, there is a “tail” provision. Once an individual becomes a long-term resident, they remain in scope for IHT on their non-UK assets for a period of between 3 and 10 years after leaving the UK, depending on their length of residence.

Case Study: The Impact on a “Deemed Domiciled” Individual in 2026/27

To illustrate the practical effects of these reforms, let’s examine a hypothetical case study.

Background: Elena, a non-UK domiciled individual, moved to the UK in the 2008/09 tax year. Under the old rules, she became “deemed domiciled” in the 2023/24 tax year (her 16th year of residence). She established an offshore trust in 2020 before becoming deemed domiciled.

1. Taxation of Foreign Income and Gains (FIG)

Pre-2025 Position: Before 6 April 2025, Elena could no longer use the remittance basis and was taxed on her worldwide income and gains. However, she benefited from trust protections that shielded the income and gains rolling up within her offshore trust, provided she did not receive benefits from it.

2026/27 Position: The protections for non-domiciled and deemed domiciled individuals regarding settlor-interested trust structures were removed for those who do not qualify for the 4-year FIG regime.  Because Elena has been a UK resident for more than 4 years, she does not qualify for the FIG regime. Consequently, she is taxable on the income and gains arising within her offshore trust structures on an arising basis.

2. Transitional Reliefs: The Temporary Repatriation Facility (TRF)

The government introduced transitional measures to soften the blow for former remittance basis users.

The TRF: Elena can utilise the Temporary Repatriation Facility (TRF), which is available for 3 tax years (2025/26 to 2027/28).  This facility allows individuals who previously claimed the remittance basis to designate and remit pre-April 2025 FIG at a reduced rate.

The TRF rates are:

• 12% for the first two years (2025/26 and 2026/27).
• 15% for the final year (2027/28).

This includes unattributed FIG held within trust structures.  In 2026/27, Elena can remit historic FIG at the 12% rate.

3. Transitional Reliefs: Capital Gains Rebasing

For CGT purposes, current and past remittance basis users can rebase foreign assets held on 5 April 2017 to their market value at that date when they dispose of them.  This is a continuation of the rebasing relief originally introduced for individuals becoming deemed domiciled under Condition B in 2017.

4. Inheritance Tax Exposure

Pre-2025 Position: As a deemed domiciled individual, Elena’s worldwide estate was subject to UK IHT.

2026/27 Position: Under the new residence-based rules, Elena is a “long-term resident” because she has been resident for 10 out of the last 20 tax years.  Therefore, her worldwide assets remain subject to UK IHT.

Furthermore, subject to transitional arrangements, any non-UK assets Elena puts into her offshore settlement in 2020 will be subject to IHT charges at times when she, as the settlor, is a long-term resident.

If Elena decides to leave the UK in 2026/27, she will remain in scope for IHT on her worldwide assets for the “tail” period. Because she has been resident for well over 10 years, her tail will be the maximum of 10 years.

Overseas Workday Relief (OWR)

For globally mobile employees arriving in the UK, Overseas Workday Relief (OWR) remains available for the first 4 years of tax residence, provided the individual was not UK resident in any of the 10 consecutive years prior to their arrival.

From 6 April 2025, OWR is subject to an annual financial limit. The relief is capped at the lower of 30% of the individual’s total employment income or £300,000.  The relieved income no longer has to be kept offshore.

Summary of Key Changes (2026/27)

Consider reviewing the specific transitional arrangements for trusts established before 6 April 2025, particularly regarding inheritance tax excluded property status under the new residence-based regime.