The Abolition of the UK Non-Dom Regime and Inheritance Tax Reforms

The UK government has enacted significant tax reforms that will impact non-domiciled individuals and long-term residents. Effective from April 6, 2025, these changes necessitate a reevaluation of tax planning strategies, with jurisdictions like Israel emerging as attractive alternatives.

Key Changes to the UK Tax Landscape

Abolition of the Non-Domiciled ("Non-Dom") Tax Status

Historically, the UK's non-dom regime allowed individuals resident in the UK but domiciled elsewhere to be taxed on a remittance basis, meaning foreign income and gains were only taxed if brought into the UK. From April 6, 2025, this regime will be abolished, leading to:

• Worldwide Taxation: All UK tax residents, irrespective of domicile, will be taxed on their global income and gains.

• Removal of Remittance Basis: The option to exclude foreign income from UK taxation unless remitted will no longer be available.

• Temporary Four-Year Exemption: New UK residents will have a limited four-year exemption on foreign income, after which full taxation applies.

Reforms to Inheritance Tax (IHT)

Significant changes to IHT will also take effect:

• Residence-Based IHT: Previously, IHT liability was primarily based on domicile status. From April 6, 2025, IHT will be determined by tax residence. Individuals who have been UK tax residents for at least 10 out of the previous 20 tax years will be classified as long-term residents and subject to IHT on their worldwide assets.

• Extended 'Tail' Period: Upon leaving the UK, long-term residents will remain within the IHT net for an additional 10 years, an increase from the current three-year period tail.

• Inclusion of Non-UK Assets: Non-UK assets, including those held in foreign trusts, will now fall within the scope of UK IHT for long-term residents.

These reforms represent a substantial shift in the UK's approach to taxation, particularly affecting those who previously benefited from Non-Dom status and domicile-based IHT rules.

Israel's Tax Benefits for New Residents

Given these changes, individuals may seek jurisdictions with more favorable tax regimes. Israel offers incentives for new immigrants (Olim) and veteran returning residents (Toshavim Chozrim Vatikin):

• 10-Year Tax Exemption: A comprehensive tax exemption on foreign income and capital gains for 10 years.

• No Reporting Requirement: No obligation to report foreign income to Israeli tax authorities during the exemption period for those who make Aliya before 31.12.2025.

• Absence of Inheritance Tax: Currently, Israel does not impose inheritance tax, allowing for the transfer of wealth without the challenges associated with IHT.

These provisions make Israel an attractive jurisdiction for those who wish to leave the UK in light of the its new tax landscape.

Considering Relocation

The upcoming UK tax reforms necessitate careful consideration of alternative jurisdictions. Relocating to Israel could offer significant tax advantages. Individuals that may be affected by these changes should evaluate their options and seek professional advice to navigate this complex transition effectively.

Adv. Assaf Hasson is a Wealth Advisor, Tax and Private Client Lawyer.

He is a board member of the ESRA Executive and of the Financial Committee.

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