Understanding the distinction between domicile vs. residency formed the bedrock of UK international tax planning for decades. Historically, a taxpayer’s residence dictated whether they fell into the UK tax net, while their domicile dictated the extent of that exposure—specifically whether they could shield foreign income and gains using the remittance basis.
However, the Finance Act 2025 and Finance Act 2026 radically transformed this landscape. The UK government has systematically replaced the concept of domicile with a purely residence-based system for almost all taxes, effective fully in the 2026/27 tax year.
Defining the Concepts
Residency is a fluid, year-by-year concept. Under the Statutory Residence Test (SRT) introduced in Schedule 45 to the Finance Act 2013, an individual is either UK resident or non-UK resident for a specific tax year based on day counts and ties to the UK. If you are UK resident, you are generally chargeable to UK tax on your worldwide income and gains.
Domicile, conversely, is a much stickier private international law concept. Every person acquires a domicile of origin at birth (usually taking their father’s domicile). While an individual can acquire a new domicile of choice by relocating with the intention to remain there permanently, it is historically difficult to shed a UK domicile of origin.
“The concept of domicile as a relevant connecting factor in the tax system has been replaced by a system based on tax residence. Please note that cases which occur from 6 April 2025 onwards will be determined in accordance with the new rules.”
The 2026/27 Shift: The 4-Year FIG Regime
Prior to April 2025, non-UK domiciled individuals could claim the remittance basis to avoid UK tax on foreign income and gains that they kept outside the UK. The government definitively abolished the remittance basis, substituting it with a residence-based system.
Under the Finance Act 2026, qualifying new residents benefit from the 4-year Foreign Income and Gains (FIG) regime. This regime ignores domicile entirely. Instead, if an individual becomes UK resident after 10 consecutive years of non-residence, they receive 100% tax relief on their foreign income and gains for their first four years of UK residence. They can even remit these funds to the UK completely tax-free.
Inheritance Tax (IHT): The Long-Term Residence Test
The distinction between domicile vs. residency historically culminated in Inheritance Tax (IHT). Non-domiciled individuals were only liable for UK IHT on their UK-situated assets, while UK domiciled individuals faced IHT on their worldwide estates.
Section 44 of the Finance Act 2025 stripped the domicile test from the IHT legislation, replacing it with a “long-term UK resident” test.
| IHT Exposure | 2026/27 Statutory Rule |
|---|---|
| Worldwide Assets | An individual is exposed to worldwide IHT if they are a “long-term UK resident”. |
| The 10/20 Test | An individual is a long-term UK resident if they were UK resident for at least 10 of the previous 20 tax years. |
| The Tail Provision | Individuals remain in scope for IHT for between 3 and 10 years after leaving the UK, depending on their total years of residence. |
When Domicile Still Matters in 2026/27
Despite the sweeping reforms, domicile has not entirely vanished from the statute books. A taxpayer’s domicile of origin remains highly relevant for transitional rules and specific anti-avoidance measures targeting “Formerly Domiciled Residents” (FDRs).
Under section 835BA of the Income Tax Act 2007, an individual is legally regarded as “deemed domiciled” in the UK if they meet Condition A. Condition A dictates that if an individual was born in the UK, has a UK domicile of origin, and is currently UK resident, they are immediately deemed UK domiciled.
Consequently, individuals born in the UK with a UK domicile of origin who establish a life abroad (acquiring a domicile of choice) cannot use offshore trust protections if they ever return and resume UK residency. Furthermore, historical domicile status before 6 April 2025 must still be determined for certain grandfathered double taxation treaties and excluded property trust assessments.
Consider researching how the Temporary Repatriation Facility (TRF) operates in the 2026/27 tax year to allow former remittance basis users to extract historic unremitted wealth at a 12% flat rate.
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