Mishcon de Reya page structure
Site header
Main menu
Main content section
Glass Building

What do the UK's upcoming non-dom changes mean for US persons?

Posted on 13 March 2024

Translations:  Chinese Flag   Saudi Flag

The UK has long been an attractive option for international individuals, whether they are drawn by its business opportunities, schools, security, lifestyle or a combination of all these factors. The sweeping changes to the UK taxation of non-doms announced on 6 March 2024 may have some wondering whether it remains such a desirable option. Some current UK residents may even be wondering whether they ought to start planning a move elsewhere.

One group who may be able to be more relaxed about the upcoming changes are US persons (i.e. US citizens and green card holders). The US's global approach to taxation as well as the US-UK tax treaties can put these individuals in a better position than other non-doms who choose to move to the UK.

The current tax regime

As a matter of UK domestic law, all UK residents are subject to UK tax on their worldwide income and realised capital gains. In the case of a person who is not UK domiciled (i.e. broadly someone whose permanent home for tax purposes is outside the UK; a "non-dom"), this is subject to the remittance basis of taxation. Broadly, this means that - provided the conditions are met, including paying an annual charge after the first 7 years - UK tax is not payable on a non-dom's non-UK income and gains unless and until those sums are brought to, or used in, the UK. Non-doms may currently benefit from this favourable basis of taxation provided they have not been UK resident in 15 of the last 20 UK tax years, at which point they become 'deemed domiciled', and taxed on their worldwide income and gains, like any other UK resident.

UK inheritance tax (IHT) is generally chargeable on all UK assets, regardless of the residence and domicile status of the owner. UK domiciled persons, including deemed domiciliaries, are subject to IHT on their worldwide assets.

The upcoming changes

The Government has announced a comprehensive reform of the UK's non-dom tax regime, to take effect from 6 April 2025. The remittance basis will be abolished, replaced by a much shorter 4-year exemption from UK tax on non-UK income and gains for individuals who were not UK resident in the preceding 10 years. Whilst the changes to IHT remain subject to consultation, it is proposed that there will be worldwide IHT exposure after 10 years of UK residence, as well as a 10 year 'tail' on ceasing UK residence to lose that exposure. Trusts used to be a common planning technique for persons approaching deemed domicile, which largely enabled them to shelter their non-UK assets from IHT and shelter their non-UK income and their capital gains (other than those derived from UK land) from UK tax exposure even if they remained UK resident - but the currently generous regime will be significantly narrowed.

What does this mean for US persons?

There are several ways in which a US person may be less affected by the upcoming changes than other non-doms, and indeed less affected by the tax implications of becoming UK resident under current rules.

Balancing global taxation

The US is virtually unique in imposing worldwide taxation on its citizens, regardless of their residence. This means that US persons cannot eliminate their global tax exposure by moving to a low-tax country or undertake "fiscal nomad" planning by ensuring they are not tax resident in any country.

The flipside to this is that if a sum will in any case be subject to US taxation, it can prove favourable to align any tax charges which other countries may seek to impose on the same sum so that the two liabilities can at least be offset against one another under an applicable double tax treaty. For US persons who are UK resident, this can mean that even if they are eligible for the remittance basis under the current rules, in some circumstances claiming it may well not be the best option in the round. If income and gains will in any case be subject to US tax, it may be preferable to choose for it also to be subject to UK tax in the year of receipt. Under the new rules, this will automatically be the case for persons who have been UK resident for more than 4 years. Absent income from LLCs, S-corps and similar mismatch vehicles, credits should be available under the US-UK income tax treaty (Income Treaty) to ensure that there is no economic double taxation. Although the UK's effective tax rates are generally higher than the US's federal rates, aligning the charges at least means the sums can be considered fully taxed in both countries in the tax year of receipt, rather than – under current rules - the UK tax liability in effect having been deferred until the income or gains in question are subsequently remitted to the UK, which can cause difficulties in obtaining tax credits for any US tax already paid on the same sums.

One point which will continue to be crucial for US persons who are (or will become) subject to UK tax on their income and gains is to ensure their investments are selected and managed with an eye on both countries' tax rules. For example, most US mutual funds are "non-reporting funds" for UK tax purposes, meaning that any gain realised on their disposal will be subject to UK income tax at up to 45%, whereas it will only be subject to US federal tax at the long-term capital gains tax rate of 20% plus 3.8% NIIT; and whilst US municipal bond interest is exempt from US federal income tax, it will be subject to UK income tax at up to 45%, so the reduced yield paid to account for the preferential US tax status is often not worthwhile if UK tax exposure has to be factored in. An investment manager experienced in managing portfolios for US/UK clients can be invaluable to navigate these nuances.

Becoming US "treaty resident" for income tax purposes

Whether a person is UK resident for tax purposes is determined by the statutory residence test. This looks at a person's connections to the UK and abroad (such as where they have a home, where and how often they work etc) as well as the number of days which they spend in the UK. The broad principle is that the more connections a person has to the UK, the less time they can spend here each tax year without being UK resident.

Where a US person is UK resident, the Income Treaty sets out a process to determine where such a person should be considered "treaty resident".

Although it is heavily fact dependent and is generally not workable for those working full time in the UK, in some circumstances with careful planning, it is possible for a US person who is UK resident under the statutory residence test to be considered US treaty resident. In that case, the US will have exclusive taxing rights over their worldwide income and gains with the exception of:

  • trading income of a UK permanent establishment;
  • UK rental income;
  • capital gains from the disposal of UK land and unquoted UK land-rich entities; and
  • dividend income from UK companies (here, the UK tax is capped at 15%, being the treaty withholding rate).

Even under current rules, this is much better than relying on the remittance basis to reduce UK tax liabilities with regard to all other non-UK income and gains, as the sum in question can be brought to the UK without triggering a tax charge and there is no need to pay the remittance basis charge. Moreover, even though they are UK resident under domestic law, the US treaty resident US citizen can invest having regard to US tax considerations only, including in US mutual funds and municipal bonds without being subject to the higher UK tax rates on them.

Under the new rules, being US treaty resident could be particularly valuable for any person who has been UK resident for more than 4 years, as it will offer continuing protection from UK tax to all non-UK income and gains, which would otherwise be subject to UK tax even if not remitted to the UK.

Giving the US exclusive estate taxing rights

Although US estate tax and UK IHT are both charged at 40%, given the UK has a much lower tax-free allowance (£325,000) than the US ($13.6 million, albeit scheduled to 'sunset' to c$7 million from January 2026), exposure to IHT significantly increases a US person's global estate tax exposure by up to c.$5 million per estate.

The US-UK gift and estate tax treaty (Estate Treaty) provides that where US person who is not a UK national is 'treaty domiciled' in the US for estate tax purposes, the US has exclusive estate taxing rights over their worldwide assets other than:

  • UK real estate; and
  • UK business property of a permanent establishment (BPPE).

This can prove even more favourable than the current IHT rules applicable to non-doms who are not deemed domiciled, which restrict their IHT exposure to (all of) their UK assets: a person who is US Estate Treaty domiciled and not a UK national has no IHT exposure on any UK assets other than UK real estate and BPPE, i.e. their UK bank accounts, shares and artworks are Estate Treaty protected from IHT.

Whilst the new IHT rules remain subject to consultation, the current proposal is that after 10 years of UK residence, a person's worldwide assets will – as a matter of UK domestic law - become subject to IHT. Additionally, it is proposed that worldwide IHT exposure would – once acquired - only cease after 10 years of non-UK residence (assuming of course that the rules are introduced in the form currently proposed, notwithstanding that this remains subject to consultation). This is where the Estate Treaty can be hugely valuable by protecting against the new 10-year IHT "tail" for US citizens who return to the US by using the 'tie breaker' rules, for example if they have a permanent home in the US but not in the UK. Provided a person is Estate Treaty domiciled in the US, their IHT exposure will be limited to their UK real estate and BPPE, even if they remain in that 10-year "tail". This could offer comfort to long-term UK residents that they can in the future reduce their IHT exposure relatively swiftly upon leaving the UK, with appropriate planning.

The ability to give the US sole estate taxing rights over most assets is only available to non-UK nationals. It will therefore continue to be important that affected individuals take UK tax advice before applying for UK citizenship if they may in the future wish to rely on the Estate Treaty in this way.


Whilst the Spring Budget announcements represent huge changes to the taxation of non-doms, as can be seen, the US/UK treaties, as well as the US's global taxation of its citizens, provide additional options for US persons, that are not available to "regular" non-doms. Any changes to the treaties would need to be negotiated between the UK and US governments, meaning alterations would not only take time to introduce, but there would need to be transatlantic agreement that changes were warranted and in each country's interests.

There are still complex considerations at play for any US person considering entering, or already in, the UK tax net, and careful planning and specialist advice are needed to ensure the best possible outcome. Additionally, there are some one-off opportunities which non-doms – including US persons – who are, or are considering becoming, UK resident may wish to take advantage of before April 2025, or under temporary provisions applicable through to April 2027. It will, however, definitely remain possible for a US person to become and remain UK resident for more than 4 years under the new rules whilst moderating their global tax exposure, provided care is taken.

How can we help you?

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

I'm a client

I'm looking for advice

Something else