UK residents with Indian domicile now taxed on overseas income

In a major shift impacting non-UK-domiciled residents, including Indian nationals living in the United Kingdom, the UK government has revised its taxation rules starting April 6, 2025. Individuals who were previously able to avoid tax on foreign income under the “remittance basis” system must now pay tax based on their residency rather than domicile.

Until now, residents with Indian domicile were only taxed on their overseas income when they brought it into the UK. However, this has changed. The UK tax system is now residence-based, meaning foreign earnings—including income from business, property, dividends, and investments in India—will be taxed even if not remitted to the UK.

Key Rule Changes from April 6, 2025

• All foreign income and gains will now be taxed for UK residents, regardless of their domicile.

• The remittance basis is abolished, impacting all residents including those with Indian ties.

• Income from global sources will be included in the tax calculation, even if it stays abroad.

Impact on Indians Living in the UK

According to experts, this shift significantly alters how Indian UK residents plan their finances. Ketan Mukhija, Senior Partner at Burgeon Law, explains:

“Individuals will enjoy a four-year exemption period from tax on foreign income. But from the fifth year onward, they’ll face UK tax on worldwide income, including rental earnings, dividends, and business profits in India—potentially taxed up to 45%.”

This makes financial and tax planning more crucial than ever for Indians holding significant assets in India while residing in the UK.

Four-Year Foreign Income Exemption

• Newly arrived residents who have not been UK tax residents for the past 10 years will benefit from a four-year exemption on foreign income and gains.

• This one-time benefit cannot be renewed.

• After four years, global income will be fully taxable in the UK.

Those who previously used the remittance basis but don’t qualify for this exemption will now face taxation on all income earned from April 6, 2025, even if it remains abroad.

Repatriation & Trust-Related Provisions

The UK government has introduced transitional measures to manage the impact of the reform:

• Trusts will no longer offer protection unless falling under the four-year exemption.

• Foreign assets held as of April 5, 2017 can be rebased for Capital Gains Tax, meaning gains will be calculated from their 2017 value.

• Income and gains earned before April 6, 2025, will be taxed only when remitted to the UK.

Temporary Repatriation Facility (2025–2028)

A special scheme allows residents to bring older foreign earnings to the UK at lower tax rates:

• 12% in the first two years

• 15% in the third year

This applies to foreign income held in trusts or abroad before the new tax rules came into effect.

Inheritance Tax: Shift to Residency-Based Rules

The UK is also overhauling its inheritance tax system, aligning it with the new residence-based model:

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

• The liability can continue for 10 years after leaving the UK.

• Foreign assets in trusts may also be taxed once the settlor becomes a long-term UK resident.

Additional Rule Changes from April 6, 2025

• Overseas Workday Relief (OWR) now limited to the four-year exemption period.

• OWR cap: £300,000 or 30% of employment income (whichever is lower).

• Employer-funded travel costs will now be exempt for only four years.

• All foreign income is taxable unless OWR is applicable.

Global Tax Trends and UK Alignment

The UK joins countries like Italy, which charges new residents a flat €100,000/year on global income, and Ireland, which still allows the remittance basis but faces increasing pressure to reform.

“This move is part of a global shift toward tax fairness and simplification,” says Mukhija. “It eliminates historical loopholes that allowed wealthy residents to avoid paying tax on overseas assets.”

Final Thoughts

This transformation of the UK tax system will profoundly impact Indian-origin UK residents, especially high-net-worth individuals with businesses or properties in India. With global income now taxable after four years of residence, proactive tax planning is critical to reduce double taxation risks and ensure compliance with both Indian and UK tax laws.

FAQs

What is the biggest change for Indian UK residents under the new tax rules?

From April 6, 2025, foreign income is taxable in the UK based on residency, not domicile. Indian residents must pay tax on global income, including income from India.

Can I still use the remittance basis for foreign income?

No. The remittance basis has been abolished. All income earned abroad is now taxable for UK residents.

What is the four-year exemption rule?

New arrivals who have not lived in the UK for 10 years prior can enjoy 100% relief on foreign income for four years. After this period, full taxation applies.

Will foreign trusts still offer tax protection?

Only if the resident qualifies for the four-year regime. Otherwise, foreign trusts may be taxed under the new rules.

How will my Indian rental income be taxed in the UK?

If you’re a UK resident beyond the four-year exemption, rental income from India will be taxed in the UK. You may also need to account for it under India’s tax laws.

What is the Temporary Repatriation Facility?

A facility that allows you to bring older foreign income into the UK at reduced tax rates—12% in the first two years, and 15% in the third year.

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